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Nasdaq Lower on China Ahead of Nvidia Earnings
Nvidia is seen as pivotal for the AI trade after the Nasdaq fell amid a lack of progress in resolving trade issues after the Trump-Xi meeting, and Huang might offer insight into the chip situation.
What's Moving the Market
- Tech sector under pressure after no progress in China talks ahead of Nvidia earnings, with higher yields weighing on high-yield stocks.
- Nvidia is expected to double earnings to $1.78, setting a high bar after the stock posted strong gains over the last two months.
- Traders are likely looking to the chipmaker for reassurance that the AI surge can continue after last week's drop in the Nasdaq suggested potential exhaustion.
Nasdaq Down, Nvidia Reporting
The premier tech index posted back-to-back losses after the conclusion of the high-stakes meeting between US President Donald Trump and Chinese President Xi Jinping. The tech sector was under pressure, with Nvidia leading the decline, after the chipmaker fell from record highs on Thursday amid hopes that CEO Jensen Huang could secure new contracts. However, the lack of breakthroughs at the political meeting, coupled with no progress in securing approvals for H200 chip sales in China, left traders disappointed and punished tech stocks. Other factors influenced the move as well, including profit-taking after consecutive index highs last week, renewed tensions in the Middle East, and some caution ahead of Nvidia's earnings after the market closes on Wednesday. Traders are monitoring rising global yields amid inflation, which weigh on stocks with high valuations, such as those in the tech sector.
Market caution ahead of Nvidia's earnings could temper the reaction, as its share price has risen over 40% since its late-March lows amid a resurgence of optimism in the tech sector. But the rally has left valuations stretched, with analysts saying the stock price appears to reflect expectations of continued growth over the next two years. This sets a high bar for the company to beat, and executives will have to convince traders that meteoric growth will continue. The consensus among analysts is that Nvidia's Q1 earnings will double to $1.78 from $0.81 a year ago while revenue rises 80% to $79.2 billion. Past results suggest that the market often looks past the company's earnings and focuses on whether guidance and commentary on outlook reassure investors that the market remains solid. Traders will also be paying close attention to updates on its Blackwell chips.
Why Nasdaq Needs Nvidia to Deliver
Analysts suggest that AI chip producers' earnings could be pivotal to maintaining momentum in the tech sector, which showed signs of exhaustion on Friday, when the Nasdaq posted its worst daily performance since March. Nvidia is the largest of the AI names and a major contributor to the overall growth in the tech stock as it comes close to a $5.0 trillion market cap. Investors will be keen to see whether the momentum continues, as a beat in the chipmaker's earnings will likely help buoy the sector until the next earnings season.
Nasdaq Could be Forming H&S
The recent drop in the Nasdaq has brought prices down to 28750, slightly above a potential head-and-shoulders neckline that aligns with the earlier May decline to 28650. If the neckline breaks, the tech index could potentially decline to 27750 as part of a measured move. However, if the lower Bollinger Band holds firm, Nasdaq could consolidate, allowing a move to the record peak of 29685 if the median BB at 29200 and the alleged shoulder near 29300 give way to bulls.
Source: SpreadEx | US Tech 100, 4-hour Chart
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