Stocks pulled back Wednesday, pressured by declines in Nvidia, as investors braced for the chipmaker's latest earnings report. The Nasdaq Composite fell 1%, while the S&P 500 slipped 0.5%. The Dow Jones Industrial Average lost 180 points, or 0.4%.
Wall Street is keeping an eye on Nvidia to gauge the sustainability of the broader tech and artificial intelligence trade. The semiconductor giant — slated to report after the close — has surged more than 150% in 2024, raising questions of how much more room there is for the stock to run. On Wednesday, it fell nearly 2%.
Focal points for investors include the delivery schedule for Nvidia's Blackwell chips and an update on the demand for AI. Art Hogan, chief market strategist at B. Riley Wealth Management, thinks that Nvidia can deliver another upside surprise for investors.
"The reason one can feel confident rests with the fact that their largest customers have already reported and talked about how much they're spending on their chips," he told CNBC. "All of the hyperscalers spoke to massive amounts of capex spend on the amount of [graphics processing units] they need to move forward with their AI strategies."
Hogan added: "It's a company that's done a pretty good job of beating expectations pretty consistently, and a company that we know all of its largest customers continue to demand all the product they can get from them."
Other technology stocks were also trading lower on Wednesday, including "Magnificent Seven" peers Amazon, Google and Microsoft.
Trading volume remains light this week ahead of Labor Day weekend. With this in mind, earnings reports from Nvidia and other big names could create volatility, according to Piper Sandler analyst Craig Johnson.
"Most stocks traded in a tight range on light volume yesterday as the equity market's upward momentum wanes ahead of several key earnings reports," Johnson wrote in a Tuesday note.
The analyst remains bullish and believes market growth will diversify headed into the end of the year.
"Overall, the glass appears half-full for the remainder of the year as the market broadens into SMID-caps. Based on our relative strength sector charts, we recommend SMID-caps in Industrials, Financials, Technology, and select parts of Healthcare," added Johnson.
Nvidia's Impact on the S&P 500
Nvidia earnings are still the most important of the season, as no other S&P 500 stock has a bigger effect on the index's earnings growth.
But Nvidia's effect has been shrinking, just as the overall "Magnificent Seven" influence has been diminishing with earnings growth broadening out this season.
Last season, Nvidia was responsible for a little more than one-third of the S&P 500's 8% first-quarter earnings growth. This season, though, it is expected to make up just 16% of the index's nearly 13% growth.
Still, the chipmaker is a behemoth in the S&P 500. With a $3.1 billion market cap, it is battling Microsoft as the second-largest stock. Nvidia makes up nearly 7% of the S&P 500. That is a bigger weighting than five of the index's 11 sectors:
S&P 500 WeightingsNvidia 6.7%Consumer staples sector 6.0%Energy sector 3.5%Utilities sector 2.4%Real estate sector 2.4%Materials sector 2.2%Source: State Street Global Advisors
What to Watch For in Nvidia's Earnings Report
Single-stock funds that track Nvidia have been a highlight for several ETF issuers and have continued to grow even in a sleepy summer for Wall Street. The biggest of the funds is the GraniteShares 2x Long Daily Nvidia ETF (NVDL), which has attracted more than $500 million of inflows over the past month and is now over $5 billion in total assets, according to FactSet.
"Nvidia is the most important stock in the world right now, so therefore it stands to reason that … there's going to be big demand. That's just the zeitgeist of 2024. But yes, it does surprise me in terms of the strength of inflows, just from a business perspective," said Will Rhind, CEO at GraniteShares.
The funds can help strategic traders amplify a postearnings pop for Nvidia, but the leveraged long ETFs could also see heavy losses if Nvidia falls and are not designed to be held for long periods of time.
Nvidia's Potential Impact on the Market
Nvidia's earnings report could have a significant impact on the broader market, particularly in the tech sector. Analysts are closely watching the report to see if it can continue to drive the AI boom or if there are signs of slowing momentum.
Analysts are also looking for guidance on Nvidia's Blackwell chips, which are expected to be a key driver of growth for the company in the coming years. The report will also offer insights into the sustainability of megacap spending on AI, which has been a major driver of the stock market's recent gains.
Ultimately, Nvidia's earnings report could be a make-or-break moment for the tech sector and the broader market. Investors will be closely watching to see if the company can live up to the hype and continue to drive growth in the AI space. If the company fails to deliver on expectations, the market could see a significant sell-off.
The Bottom Line
Nvidia is a key player in the tech sector and its earnings report is likely to move the market. Investors are looking for signs that the AI boom is sustainable and that Nvidia can continue to deliver strong growth. If the company fails to meet expectations, the market could see a significant sell-off.
