Why Nvidia’s earnings report on Wednesday is more important than you think

There’s a lot at stake when the world’s most valuable public company reports earnings on Wednesday.

Nvidia (NVDA)’s latest quarterly financial update, due after the closing bell, is widely viewed as the biggest event of this earnings season. It could have wide-ranging implications for AI trading and the broader stock market.

A strong showing from the chipmaker at the heart of the AI ​​boom, seen as a bellwether for the industry, could prove just what the market needs to revive confidence in the AI ​​rally that has boosted shares of Nvidia, its partners and stocks across industries this year, pushing major indexes to a series of record highs.

However, with expectations high and signs that investors may be hard to sell amid lingering concerns that high stock valuations have created an AI bubble, the stock could be poised for punishment if Nvidia’s results are less than stellar.

With the chipmaker facing a particularly tough setup ahead of Wednesday night’s event, some investors are already bracing for increased volatility in the aftermath. Options pricing suggests that traders see shares swinging roughly 7% in either direction by the end of the week.

Nvidia’s outsized influence on the major indexes — its market capitalization is about $4.4 trillion, and the stock represents about 8% of the S&P 500 — also means that a big move in its stock will impact the market more broadly. If Nvidia shares rise or fall, the shares of its partners and others related to AI will likely rise as well.

Even if you don’t own Nvidia stock directly, a large movement in the stock price could affect you if you hold money in broad market index funds through brokerage accounts or tax-advantaged retirement accounts like a 401(k) or IRA. Options pricing indicates that traders expect the S&P 500 to move close to 2% in either direction by the end of the week, affecting a wide range of investors and savers.

In recent quarters, the AI ​​chip maker’s quarterly report has tended to be a selling news event, with the stock ending its earnings week below its levels heading into the event in three of the last four quarters, despite strong results. However, Nvidia stock typically rose in the following months.

Shares, which fell nearly 3% on Tuesday amid widespread losses, have added more than a third of their value this year so far. Most Wall Street analysts surveyed by Visible Alpha believe the stock has room to rise.