Nvidia’s forthcoming earnings report will be a reality check for US stocks

The upcoming Nvidia earnings report represents a critical moment for both the AI industry and broader stock market, following a turbulent period triggered by Chinese startup DeepSeek’s AI model announcement. As the world’s second most valuable company with a 6.3% weight in the S&P 500, Nvidia’s performance serves as a key indicator of AI sector health and market sentiment.

Market context and recent volatility: Nvidia’s stock experienced significant turbulence after DeepSeek unveiled a lower-cost AI model that challenged U.S. market dominance.

• The company’s shares plunged 17% on January 27, resulting in a record one-day market value loss of $593 billion
• Despite the initial shock, Nvidia’s stock has nearly recovered, with the company asserting that DeepSeek’s advances actually demonstrate increased demand for its chips
• Options markets suggest a potential 7.7% stock price swing following the earnings announcement, representing approximately $260 billion in market value

Earnings expectations and valuation metrics: Nvidia’s fourth-quarter results are anticipated to show substantial growth, though investors remain focused on future guidance.

• The company is projected to report Q4 profits of $20.89 billion, reflecting a 72% year-over-year revenue increase
• Nvidia currently trades at 32 times forward earnings, down from 40 in early November, compared to the S&P 500’s multiple of 22
• Analysts and investors will closely examine guidance on chip supply and demand to justify the company’s premium valuation

Market impact and correlation shifts: Nvidia’s influence on broader market movements has evolved significantly in 2025.

• The correlation between Nvidia and the S&P 500 has decreased to 30% in 2025 from 71% in 2024
• Despite reduced statistical correlation, the psychological impact of Nvidia’s performance on market sentiment remains significant
• Investors may rotate out of AI-related positions into sectors such as healthcare, software, and financials depending on the earnings outcome

Broader economic considerations: The earnings report coincides with other crucial economic indicators that could influence market direction.

• January U.S. inflation data will be released the same week as Nvidia’s earnings
• Recent inflation readings showed the largest increase in eight months during December
• Higher-than-expected inflation could delay Federal Reserve interest rate cuts, adding another layer of market uncertainty

Market implications and sector dynamics: The upcoming earnings report could mark a pivotal moment for both Nvidia and the broader technology sector.

• Market strategists view Nvidia’s results as a potential catalyst for broader market movement
• Investors are particularly focused on guidance regarding chip supply and demand dynamics
• The company’s performance could influence sector rotation and overall market sentiment in the coming months

Looking ahead: While Nvidia’s direct statistical influence on the broader market has diminished, its earnings report remains a crucial barometer for AI industry health and could significantly impact investor psychology and sector allocation decisions in the months ahead.