(Bloomberg) — Stocks fell in the run-up to the highly anticipated results from Nvidia Corp. — the last of the “Magnificent Seven” megacaps to report.
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Just hours away from the giant chipmaker’s numbers, Nvidia slid 2%. Investors are waiting to see whether the firm will be able to match the sky-high expectations surrounding the artificial-intelligence technology that’s been dubbed an opportunity of a lifetime. Analysts, on average, see Nvidia projecting revenue growth of over 70% for the current quarter. And traders will be keen to know how chief Jensen Huang sees demand developing into 2025.
Because of its uncontested leadership in AI, Nvidia’s market capitalization has ballooned to more than $3 trillion. Due to its major influence on broader indexes, the reaction to earnings could drag the whole market up or down with it. Options trading implies a nearly 10% move in either direction on the day following the results.
The long-awaited Nvidia earnings call — viewed globally as the most significant “tell” about the outlook for AI — is expected to confirm that demand remains strong, according to Quincy Krosby at LPL Financial. But for markets, meeting expectations may not be enough to underpin the share price, she said.
“There’s the issue of the delay in chip sales based on the advanced Blackwell construction that needs to be addressed,” Krosby noted. “And questions as to whether companies can monetize their AI capabilities after allocating billions for their AI infrastructure buildout.”
The S&P 500 broke below 5,600. Trading volume was 25% below the average of the past month. The Nasdaq 100 fell 1%. Super Micro Computer Inc. tumbled 25% after saying it will delay filing its annual financial disclosures. Warren Buffett’s Berkshire Hathaway Inc. topped $1 trillion for the first time.
Treasury 10-year yields were little changed at 3.83%. That’s ahead of a $70 billion US sale of five-year notes.
While the hype nearly never lives up to reality, when it comes to being the “most-important stock” in the market, investors may have a point regarding Nvidia, according to Bespoke Investment Group strategists.
Throughout its history as a public company, the stock has averaged a one-day move of 8.1% in reaction to earnings, they noted. Besides Meta Platforms Inc., the only other stocks that have experienced an average reaction of more than 5% following their results were Tesla Inc. and Alphabet Inc.
To Matt Maley at Miller Tabak, it’s been a “pretty uneventful week” so far, the odds are good that we’ll see some significant movement one way or the other after Nvidia reports.
“The activity should at least pick up,” Maley said.
Of course, a big pick up in “activity” does not mean we’ll definitely get a big pick up in “volatility,” but it’s a good bet that investors will not be sitting on their hands as much on Thursday, he said.
Future gains in global tech stocks should be more gradual after the quick rebound over the past three weeks, with potential headwinds from US macroeconomic data and further news on semiconductor export controls likely contributing to rising volatility, according to Solita Marcelli at UBS Global Wealth Management
“However, we continue to hold a positive structural view on the broader AI theme, and see ways investors can manage their exposure to the technology that we think is set to drive growth in the years to come,” she noted.
The correlation between the S&P 500 and Nvidia has fallen as the stock’s effect on index earnings growth is fading, according to Bloomberg Intelligence’s strategists led by Gina Martin Adams.
“AI themes are still drawing significant attention, yet the dominance is likely to decrease as other sectors and themes attract mind and fundamental share,” they wrote.
The S&P 500 companies outside the “Magnificent Seven” cohort more than doubled growth expectations to 9.2% compared with the forecasted 4%, BI said. Three of the 11 sectors — including industrials, real estate and staples — saw growth instead of declines. Energy was the only sector to fall short.
Trading in stock options shows that investors are positioning for gains following the August wobble.
The S&P 500’s call skew, a measure of how much traders are willing to pay for bullish exposure, is steepening fast, suggesting some urgency in grabbing bullish options after Jerome Powell’s dovish Jackson Hole speech, said Nomura’s Charlie McElligott.
The market keeps “trading like a beach ball you’re trying to hold underwater,” McElligott wrote in a note, pointing to demand for right-tail hedging that outweighs the remaining forced risk management from the volatility event in early August. That’s why, despite some impulse selling at times, equity indexes “keep grinding back,” he said.
Corporate Highlights:
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Kohl’s Corp. raised its full-year profit outlook as the retailer trims expenses and reduces inventory levels amid a pullback from consumers.
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Abercrombie & Fitch Co. beat analysts’ sales expectations for the sixth consecutive quarter, but it wasn’t enough to impress investors who have grown accustomed to the ’90s fashion comeback.
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Foot Locker Inc.’s sales surpassed analysts’ expectations as turnaround efforts and a rekindled relationship with key partner Nike Inc. begin to pay off, but investors remain unimpressed by the progress.
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Nordstrom Inc. offered a rosier view for the current year’s sales following better-than-expected results at its discount chain, the latest indication that shoppers are pivoting to off-price options as they hunt for deals.
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Warren Buffett sold an additional $982 million of Bank of America Corp. stock as his conglomerate continues to shrink its investment in the second-largest US bank.
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B. Riley Financial Inc.’s lenders have granted the embattled firm more time to produce an overdue financial report as it looks for ways to ease its debt load of more than $2 billion.
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Neurocrine Biosciences Inc. plunged after a study of its experimental schizophrenia treatment was disappointing when compared to a rival medicine that’s likely to hit the market much sooner.
Key events this week:
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Eurozone consumer confidence, Thursday
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US GDP, initial jobless claims, Thursday
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Fed’s Raphael Bostic speaks, Thursday
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Japan unemployment, Tokyo CPI, industrial production, retail sales, Friday
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Eurozone CPI, unemployment, Friday
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US personal income, spending, PCE; consumer sentiment, Friday
Some of the main moves in markets:
Stocks
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The S&P 500 fell 0.5% as of 11:59 a.m. New York time
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The Nasdaq 100 fell 1.1%
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The Dow Jones Industrial Average fell 0.3%
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The Stoxx Europe 600 rose 0.3%
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The MSCI World Index fell 0.4%
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Bloomberg Magnificent 7 Total Return Index fell 1.3%
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The Russell 2000 Index fell 0.4%
Currencies
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The Bloomberg Dollar Spot Index rose 0.2%
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The euro fell 0.5% to $1.1126
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The British pound fell 0.5% to $1.3200
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The Japanese yen fell 0.4% to 144.47 per dollar
Cryptocurrencies
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Bitcoin fell 4.6% to $59,033.13
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Ether fell 3.2% to $2,497.99
Bonds
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The yield on 10-year Treasuries was little changed at 3.83%
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Germany’s 10-year yield declined three basis points to 2.26%
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Britain’s 10-year yield was little changed at 4.00%
Commodities
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West Texas Intermediate crude fell 1% to $74.79 a barrel
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Spot gold fell 0.7% to $2,506.27 an ounce
This story was produced with the assistance of Bloomberg Automation.
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