Nvidia Earnings Could Shore Up AI, Nasdaq

Traders are looking to Nvidia's Q4 earnings for insight into data centre demand and reassurance that AI demand and spending can reinvigorate the tech-heavy Nasdaq.

The Market Driving Points

• Nvidia earnings are in focus on Wednesday, with EPS expected to jump 71% to $1.52.
• Traders are looking for signs that the AI-based tech wave is still in motion, with a focus on data centre demand and the company's pricing power.
• Earnings come at a pivotal moment for the Nasdaq, which is barely in the green for the year as traders have lost interest in tech megacaps.

Can Nvidia Earnings Rescue the Nasdaq?

The premier tech stock index, Nasdaq, has been struggling to make headway this year. Last week, it managed to break an almost month-long losing streak that had left the index essentially where it was on January 1st, but that was thanks to general optimism around tariffs, which faded fairly quickly. While traders cheered AI's growth potential, its disruptive effect on software companies contributed to the Nasdaq's underperformance as traders rotated out of tech megacaps into sectors that have underperformed over the last couple of years, such as energy, materials and consumer staples. While this rally has also helped the normally more sluggish DJIA beat the Nasdaq, some traders are wondering if it is a sign that the AI craze has run its course. Tech stocks underperformed despite reports from companies like Intel and TSMC that demand for AI chips remains strong. Traders are likely looking for reassurance from AI tech leader and chip supplier Nvidia that there is more upside to the tech trade – or confirmation that it's time to get out before the bubble bursts.

Nvidia will report its Q4 earnings after the market closes on Wednesday, with the consensus among analysts for its EPS to rise 71% over the last year to reach $1.52 and sales anticipated to jump 67% to $65.7 billion. The company's share price has risen only 35% in that time and has essentially plateaued since its Q3 earnings. Typically, investors are most interested in Nvidia's forecasts, with the rest of the tech space reacting to commentary on AI chip demand. Analysts also suggest markets could be looking at pricing trends to see if there is underlying slack in demand, with a gross margin at or above 75% likely reassuring investors that the company can maintain its pricing power.

A Sign of the Tech Times

Even traders who are not closely tracking Nvidia will have reason to care about the company's performance and whether it beats estimates once again. It has one of the highest weightings on the Nasdaq, and other tech firms are likely to move in sympathy. Despite the tech sector posting strong earnings this season so far, with 87% of companies beating estimates, the sector has struggled to make headway. This could mean there is pent-up momentum if Nvidia's earnings convince traders to get back into the tech wave.

Nasdaq Double Top or Pennant?

After the Nasdaq bottomed out at 24150 in early February, bulls have struggled to get through 25400, with price action consolidating in a tightening range. If Nvidia earnings trigger an upside and Nasdaq breaks the local peak and the upper pennant trendline near 26k, the index could reach a new record high. However, disappointing earnings could push the tech-heavy index towards 23800 if the lower pennant trendline gives way to bears. This would expose the 23000 psychological support, resulting in a confirmed double-top formation near 26250.

Source: SpreadEx | US Tech 100, Daily Chart