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The upcoming earnings report from Nvidia on August 28 is poised to be a critical event for the U.S. stock market, especially as the chipmaker has been a driving force behind the market’s rally throughout 2024. Nvidia’s chips, considered the benchmark in artificial intelligence (AI), have led the company to a staggering 150% gain year-to-date, contributing to the S&P 500’s 17% rise this year.
The market’s attention will be sharply focused on whether Nvidia can sustain this momentum as it navigates a potentially volatile period.
Nvidia’s rapid ascent has not gone unnoticed, with the stock now trading at approximately 37 times forward 12-month earnings estimates—well above its 20-year average of 29 times. This steep valuation has drawn comparisons to the dotcom bubble, raising questions about whether current levels are sustainable.
Picture: Nvidia on the rise as seen on the VT Markets app.
Our analysts look to the charts for guidance. Nvidia’s stock is currently trading at $128.48, showing a strong upward movement with a 2.19% gain. Market participants are on edge as they anticipate a major swing in the stock following the upcoming earnings release.
The market is expecting a swing of 10.3%, which is much higher than the stock’s average post-earnings move of 8.1% over the past three years.
This heightened expectation reflects the high stakes surrounding Nvidia’s earnings results and future guidance, especially in light of recent market reactions to other tech giants like Microsoft, Tesla, and Alphabet, whose earnings reports have been met with sharp declines due to their inability to justify lofty valuations.
The chart indicates a bullish trend, with the stock price trading above key Moving Averages (5, 10, 30), which are all sloping upwards, reinforcing the positive momentum. The MACD indicator also signals strong bullish momentum, with the MACD line well above the signal line and the histogram showing increasing positive momentum. This suggests that Nvidia’s stock may continue to climb, especially if the earnings report meets or exceeds market expectations.
However, investors should be cautious, as any disappointment in Nvidia’s results or guidance could lead to a sharp correction, given the high expectations already priced into the stock. Key levels to watch include resistance around $140.67, which could be tested if the stock continues its upward trajectory, and support near $125, which could come into play if the earnings report fails to impress.
The company’s performance in the upcoming earnings report, along with its forward guidance, could set the tone for market sentiment as we head into September, a month historically challenging for the S&P 500, which has averaged a 0.78% decline since World War Two.
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The broader market outlook remains cautious as well. Despite a robust August for stocks, there are concerns that the rally may lose steam, especially if Nvidia’s earnings fail to impress or if its guidance signals a slowdown in corporate investments in AI.
Additionally, the Federal Reserve’s stance on monetary policy and upcoming U.S. labour market data will be crucial in shaping investor sentiment. Any signs of continued weakness in employment could reignite recession fears, further complicating the market’s path forward.
Moreover, the political landscape adds another layer of uncertainty, with the tight presidential race between Vice President Kamala Harris and former President Donald Trump potentially contributing to market volatility in the coming weeks.
As the S&P 500 trades at 21 times expected earnings—way above its long-term average—investors like John Belton from Gabelli Funds caution that the market’s high valuations set a challenging bar for further gains, even with strong earnings from Nvidia.
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