How much hope is left for Nvidia stock? S&P 500 index fund holders are hoping to get an answer to that big question next week.
Nvidia has capitalized on Wall Street’s artificial intelligence craze to become one of the stock market’s biggest companies, with a market capitalization of more than $3 trillion. That rise has been backed by real money, as tech companies have been snapping up Nvidia chips to train their AI models.
Nvidia reports its latest quarterly results on Wednesday, and analysts expect the company’s spring sales to surge 112% year over year to $28.65 billion, well above the 5% quarterly sales increase for the S&P 500 as a whole, according to FactSet.
The problem, critics say, is that such phenomenal growth has created too much enthusiasm among investors. In the first six months of this year, Nvidia’s shares soared nearly 150%. At the time, the company was trading at just over 100 times its earnings over the past 12 months, far higher than either its history or the S&P 500 index as a whole.
Combined with Nvidia’s sheer size, this incredible performance means that the semiconductor company accounted for nearly 30% of the S&P 500 index’s total return in the first half of this year — all from just one of the 500 companies in the index, or 0.2% of the constituent companies.
That outsized influence showed its downside this summer, when Nvidia’s stock price fell 27% from a peak in late June to early August. Wall Street worried that Nvidia and other big tech stocks had simply gotten too expensive, in a rally reminiscent of the 1990s tech boom, albeit with the caveat that they are now generating much bigger profits than the dot-com companies of the late 20th century.
Nvidia’s share price decline helped send the S&P 500 down nearly 10% from an all-time high it hit last month. The S&P 500 also had a day of declines even as most stocks on Wall Street were rising. The declines of Nvidia and other leading big tech stocks dwarfed all others that day.
The drop in stock prices helped remove “some excess” as traders flocked to Nvidia and other big tech stocks, said Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management.
Nvidia’s earnings report next week may reveal how much, if any, cash is left. A strong performance from Nvidia is no guarantee that the stock will rise further — just look at what happened at Google’s parent company earlier this quarter.
Alphabet’s shares fell even as its profit and revenue beat analyst expectations, showing how difficult it may be for the stock to rise further.
That’s why while market attention was on Federal Reserve Chairman Jerome Powell’s highly-anticipated speech on interest rates on Friday, market minds were on Nvidia’s upcoming report, according to Bank of America strategists led by Ohsung Kwon.
