Nvidia stock up 1.5%: why earnings can make or break the AI trade

The upcoming earnings report from Nvidia on Wednesday afternoon comes at a critical moment for US equity markets.

Investors are increasingly uneasy about the outlook for artificial intelligence and the sustainability of massive infrastructure spending.

While most Wall Street analysts expect strong results from the chipmaker, supported by heavy investment in computing capacity, there is growing uncertainty about how markets will respond.

Fears around AI-driven disruption and the durability of capital-intensive strategies have begun to dominate investor sentiment.

After driving market gains for several years, Nvidia’s shares have cooled in recent months, rising just 3.4% since the start of the fourth quarter.

Ahead of the earning later today, the Nvidia stock was trading up 1.6% to trade at around $195.

The slowdown reflects investor concerns over the scale of AI spending by major customers such as Alphabet and Microsoft.

Pressure on broader technology sector

The shift in sentiment has weighed on several parts of the technology sector perceived to be vulnerable to AI disruption.

Shares of companies such as Intuit, Gartner, and Workday are down more than 39% since the start of the year.

A Bloomberg index tracking the “Magnificent Seven,” which includes Apple, Amazon, Meta Platforms, and Tesla, is down 5.5% in 2026.

These declines have contributed to pressure on the S&P 500, which has fallen more than 1% from its late-January peak.

Nvidia earnings expectations remain high

Despite recent weakness, Nvidia remains the world’s most valuable company, with a market capitalisation of about $4.7 trillion, giving it significant influence over benchmark indices.

Analysts expect Nvidia’s revenue to rise 68% to $66 billion in its fiscal fourth quarter, which ended on January 31.

Adjusted earnings are forecast to increase 72% to $1.53 per share.

The company has exceeded expectations for 13 consecutive quarters, but forecasts continue to rise.

Investors are also focused on gross margins, which were pressured last year by high production costs for Blackwell chips.

Adjusted gross margin is expected to reach 75% in the fourth quarter, the highest in more than a year, and to remain near that level in the current fiscal year.

The Data Center division is projected to account for nearly 90% of revenue, with about $58.7 billion expected, driven by hyperscaler demand and early contributions from Blackwell systems.

Capex concerns dominate investor debate

A major concern around AI capex continues to shape sentiment around Nvidia and the broader AI trade.

The first relates to capital expenditure by hyperscalers, including Microsoft, Meta, Amazon, Alphabet, and Oracle.

According to Goldman Sachs, collective spending could exceed $1 trillion this year.

Morgan Stanley estimates that cumulative outlays could reach $4 trillion by the end of the decade.

These commitments are consuming a large portion of free cash flow, limiting share buybacks and increasing reliance on debt markets.

Investors remain concerned that returns on these investments have yet to justify their scale.

A strong outlook from Nvidia and commentary from Chief Executive Officer Jensen Huang on long-term demand are likely to intensify debate over the sustainability of this spending.

History of post-earnings volatility

Nvidia’s earnings history suggests that strong results do not always translate into immediate share gains.

The stock has declined after five of its past eight earnings releases, even when expectations were exceeded.

In 2024, post-earnings moves ranged from a 13.08% surge in February to an 8.35% decline in August, underscoring the potential for sharp volatility.

With expectations elevated and sentiment fragile, investors are bracing for another decisive reaction.