For much of the year, chip stocks have been driving the market higher. Now, Nvidia Corp.'s earnings have the potential to either confirm that the rally has further room to grow or add to investors' growing concerns.
Key Earnings Report Ahead
The leader in artificial intelligence semiconductors is set to report its results after the market close on Wednesday. Wall Street anticipates another strong performance from chipmakers, as Big Tech continues to invest heavily in AI infrastructure. Investors will be looking for signals about the growth outlook moving forward.
“Nvidia’s results or guidance and the discussion on the call can give investors more confidence that this AI buildout will last not just a quarter, not just 2026, but into 2027 and 2028 and beyond,” said JoAnne Feeney, a portfolio manager at Advisors Capital Management, which owns Nvidia shares. “That will be reassuring.”
Potential Market Impact
A disappointment, however, could validate fears that the sector has become overextended. The Philadelphia Stock Exchange Semiconductor Index has surged 60 per cent this year but fell 6.4 per cent over Friday and Monday amid inflation worries. Nvidia shares are up 18 per cent in 2026 and 34 per cent since a late March low, but have dropped 6.4 per cent in the last three sessions. They still outperform the technology-heavy Nasdaq 100 Index, which has gained 14 per cent this year.
“Nvidia unfortunately created the expectation that it’s going to beat and raise every quarter, if they don’t, that’s going to be disappointing,” Feeney added.
Market Leadership and Valuation
Despite a relatively underwhelming performance in 2026, Nvidia remains the largest stock in the market, accounting for nearly a fifth of the S&P 500 Index’s 7.4 per cent advance this year. Four other chipmakers—Micron Technology Inc., Broadcom Inc., Advanced Micro Devices Inc., and Intel Corp.—are among the seven largest point contributors to the S&P 500’s rise in 2026, a level of leadership rarely seen from this cyclical industry.
Investors have ample reasons for optimism given the economy's AI-driven cash influx. The four biggest spenders—Amazon.com Inc., Alphabet Inc., Microsoft Corp., and Meta Platforms Inc.—are planning as much as US$725 billion in capital expenditures this year and significantly more in 2027.
Chips are a major part of that spending, and Nvidia retains a commanding share of the AI accelerator market. Growth is so rapid that the stock has started to appear cheap. Consensus estimates for Nvidia’s net income in fiscal 2027 have risen by 13 per cent over the past three months, while revenue views have climbed 12 per cent. As a result, the shares now trade at less than 24 times estimated earnings, well below their 10-year average of roughly 36.
“The valuation is secondary to the fundamental growth story, which remains the primary driver, but valuations aren’t at a discomforting level,” said Jeffrey Blazek, co-chief investment officer of multi-asset at Neuberger Berman Group, which has US$567 billion in assets under management. Nvidia’s valuation “gives us comfort that we’re not in a bubble relative to its earnings or cash flow.”
