Nvidia to Guide Rest of August For Nasdaq

After Nvidia promised vastly improved sales, investors might get the first look at how the AI trade could play out with the company's earnings report and impact on the Nasdaq as it suffered a 6% loss in August.

The Unstoppable Rise of AI

Earlier this month, Nvidia rose to the ranks of a trillion-dollar company thanks to its shares gaining almost 300% in the first part of the year. Since then, the stock price has trended a little lower, in line with the general market impacted by news outside of the tech space. As the company heads into its mid-year earnings report, it's time to check on whether it is matching up to its growth potential.

At its last earnings release, Nvidia offered guidance for sales well above market expectations, citing demand for AI tech, with the stock jumping following the earnings release. As the third-largest market gain in history, it's a pretty high bar to beat this time around. Nevertheless, analysts are expecting sales and profits to increase from the prior quarter and year substantially. Sales almost doubled to $11.1B from $6.7B last year. But earnings are expected to do even better and more than quadruple to $2.06/shr from $0.51/shr in the second quarter of 2023.

Driving Growth, or Weighing on Tech

Nvidia's robust earnings guidance last time was seen supporting tech stocks that are heavily weighted on the Nasdaq as market participants jumped on the AI trade. The higher stock price has now pushed its forward p/e ratio to 42x, surpassing even Tesla. Usually, the focus for companies is on guidance, but now Nvidia will likely have to show some results to satisfy investors that its stock price is realistic. The company guided sales of at least $11B this quarter, and a miss could substantially shake market confidence.

On the other hand, a beat of estimates could restore market confidence in a tech sector under pressure from recent better-than-expected economic data, which raised the possibility of more Fed action. Market analysts have fretted over the lack of breadth in the market, as a handful of stocks in the early part of the year helped drive indices higher. That was especially true for the Nasdaq since all of these stocks were gaining thanks to AI.

Investors are likely hoping for another dose of magic to keep the trend upward going, with strong guidance from Nvidia. Missing that mark this time around, though, following Nasdaq’s special rebalance last month, the impact to the downside could be less forceful.

Impulse Hints at Continuation

Nasdaq’s fall in early August confirmed the slowdown of a trend starting in Q3 2022, with a slide below the lower end of the ascending channel near 14k opening the door to 13k. If bulls can reclaim 15k, the chances of spiking to new 2023 highs will rise past 15360. In such an event, the attempt at 16k this time around will probably be stronger, paving the wzy to 16800.

The impulsiveness of the downward leg from the peak points to short-term pullbacks, with corrections of flag or pennant fashion hinting at trend continuation.

Source: SpreadEx / US TECH 100

Key Takeaways

Nvidia's upcoming earnings report will provide insight into the impact of AI on the company's earnings and the Nasdaq. While Nvidia's stock price has dipped recently, the previous earnings showed strong sales and profit growth, with expectations for further increases this quarter. Investors are looking for results to support Nvidia's high stock price and restore confidence in the tech sector. A miss could shake market confidence while beating estimates could have a positive effect. The recent rebalance of the Nasdaq may mitigate some downside impact if Nvidia falls short.