Can Nvidia Earnings Rescue the Nasdaq?

Tech stocks have been under pressure since the tail end of earnings season, buffeted by rising yields and concern about excess spending as investors count down the hours to Nvidia's earnings release.

The Key Factors Behind the Market Move

• Nvidia's earnings are expected to almost double to $2.09, as investors look to guidance for a continuation of the trend.
• The AI chipmaker raised prices, a sign that higher costs are permeating the industry, which could weigh on tech sentiment.
• A handy beat in Nvidia's earnings could be a catalyst for a Nasdaq rebound ahead of the Fed's Jackson Hole Symposium later in the week.

Nasdaq On Hold for Nvidia Earnings

Tech stocks have been declining since their high a week ago and are now seemingly in a holding pattern ahead of AI leader Nvidia's earnings and the Jackson Hole Symposium later in the week. The two events could answer the major issues affecting the Nasdaq, as investors worry that rising costs will impact the profits of tech companies, and market upside could be limited by higher borrowing. The world's leading AI chip manufacturer, Nvidia, will report earnings on Wednesday after the market close and is the most proximate potential catalyst for the market. Traders hope the company will signal that demand in the space remains solid, potentially reigniting the rally. However, the company is already getting ahead of potential bad news by announcing a price hike of over 15% on its AI chips as it struggles with component costs. During earnings season, hyperscalers announced increased spending to offset the high cost of memory, and investors were unhappy that many major names reported declines in cash flow due to higher costs. The risk is that Nvidia is facing similar problems, which could undermine its fantastic profitability growth.

Analysts are still expecting Nvidia's Q2 EPS to nearly double from last year to $2.09 per share, up from $1.05, with sales showing similar growth, rising 97% to $92.2 billion. That assumes the company manages to keep its profit margin at a similar rate and hasn't faced rising costs that are becoming endemic in the sector. The last time the share price hit a record high was way back in May, and it's trading up just 18% year-to-date, which could reflect traders' lower expectations. Analysts have noted Nvidia's surprisingly low relative valuation ahead of earnings, which could make it an outlier in the tech sector dominated by overly high expectations. Unlike in prior earnings, the consensus among analysts is not dramatically ahead of the company's own outlook, which predicts sales of around $91.0 billion this quarter. However, the focus is likely to be once again on the outlook, more than on what happened over the last quarter. Nvidia is expected to guide Q3 earnings, with Street consensus for sales to rise at least 80% to around $104 billion. A failure to reach that level could leave the market punishing the stock quite severely.

What Might Push Nvidia and the Nasdaq

After earnings, the investor call could also shake things up as CEO Jensen Huang gives his take on the market situation and production development. Investors will be listening closely for progress on Blackwell Ultra, and confirmation that Vera Rubin shipments will start in the coming quarter. A handy beat in the top AI stock could help put in a floor for the Nasdaq, which might also benefit from stabilising yields. The cost of borrowing has come down at the start of the week, which could help support high-valuation stocks, such as tech, but traders will likely be waiting for the Fed to signal confirmation later in the week.

Nasdaq Pullback, Where's the Bounce Level?

The Nasdaq has struggled to gain momentum and has not managed a new high since late May. The RSI indicator is just below 50, suggesting price action is nearly balanced, so the upcoming data could easily tip it either way. A continuation of the downward trend would find support at the prior support level around 28K, with a breakthrough targeting the summer low of 27K. To the upside, it's more crowded, as the 30K psychological level offers the first resistance. The index has tried several times over the last couple of months to break the all-time high of 31K, which would be the next resistance if the index is buoyed by Nvidia's earnings and a more dovish Fed this week.

Source: SpreadEx | Nasdaq, Daily Chart