Tech Rally at Test as Investors Remain Sceptical

The lack of enthusiasm that followed the impressive earnings of Nvidia could indicate a waning interest in the tech sector.

Rising to the Top

Despite Nvidia exceeding analyst expectations for both revenue and profitability in its Q4 earnings, the stock traded sideways immediately after the release and subsequently declined by more than 9% during the next full day of trading. The company posted an EPS of $0.89, surpassing the consensus forecast of $ 0.84, and projected growth for the upcoming quarter that exceeded market expectations. Although NVDA partially recovered after the initial reaction, the muted comeback suggests that investors are beginning to lose enthusiasm for the technology sector.

After dedicating significant resources to AI development, Nvidia has become a proxy for the AI-driven tech market as a whole. Some analysts argue that the company, and by extension the sector, might be suffering from its own success. The share price has skyrocketed by over 1,700% in the last five years, but earnings have struggled to keep pace. Earnings reports have often prompted investors to take profits and secure gains from the previous three months. Despite reporting strong results, Nvidia has experienced share price declines following its two most recent earnings releases.

The Peak or New Heights Ahead?

The underperformance of Nvidia and the group of stocks collectively known as the Magnificent Seven, which had been driving equities higher over the past year, suggests that the issue may extend beyond mere profit-taking. Big Tech has enjoyed stretched valuations after a prolonged rally fueled by lofty future growth expectations, and the future is fast approaching. Since pushing the Nasdaq to a record high on February 19, Big Tech has declined by nearly 12% in less than two weeks. Analysts point to a problem outside the AI sphere: a darkening outlook for the US and global economies.

US retail sales have disappointed, and inflation has been higher than anticipated. This could keep consumer demand depressed and investment costs elevated as the Federal Reserve continues its efforts to combat rising prices. Investors have also become more cautious since the arrival of DeepSeek, leading to questions about whether the leading-edge, high-cost technology driving growth for technology firms is genuinely the optimal approach for AI development. This concern becomes even more pressing if an economic downturn occurs, and the high valuations become increasingly unattractive in an uncertain world embroiled in a trade war against China and unpredictable tariff policies.

Wedge Suggests Nasdaq Peaked

The Nasdaq might have formed a terminal wedge pattern at the peak of 22220, suggesting a potential continuation towards the lower trough of the pattern around 17250. The 19950 support remains a strong barrier, with a break below potentially triggering further selling pressure to 18360 and lower. Even if the short-term support holds, the index still faces downside risk as it trades below 20770 and 22130. Meanwhile, bullish price action could open the door past 22220 and potentially pave the way for 22500 and the 23k handle.

Source: SpreadEx / US Tech 100

Key Takeaways

While Nvidia beat economist estimates, the lack of investor enthusiasm following its earnings suggests growing concerns about the broader tech sector. Tech giants have since underperformed, and the potential impact of inflation and economic uncertainty around the globe has probably weighed on sentiment. As the future unfolds, investors might keep a close eye on the sector’s lofty valuations and whether tech can continue driving growth.