AI Optimism Returns as Nvidia Changes the Conversation
Nvidia delivered a strong beat of high expectations, but here's the big test.
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AI optimism returned on Wednesday as investors anticipated a strong earnings report and positive guidance from Nvidia (NVDA) . Breadth was about 60% positive with the Magnificent Seven (MAGS) and the Nasdaq 100 (QQQ) leading the charge with gains around 1.5%. The Russell 2000 (IWM) lagged a bit with a gain of 0.5%, but that was driven by rotation back into the big-cap technology names.
The rally on Wednesday was mostly driven by the names that have acted the worst lately and that includes Bitcoin (IBIT) and Ethereum (ETH) , which both had solid days after hitting cycle lows on Tuesday.
The big question going into the close was whether the Nvidia results could keep things running or whether a positive response would be used as an opportunity to escape stocks that have recently had substantial technical problems.
Nvidia is not necessarily a stock that leads the broader market. In the past the broader market has moved in the opposite direction of Nvidia when it reported earnings. Its success is company-specific to a degree and doesn't necessarily reflect overall economic health. It also won't tell us much about who the winners and losers will be in AI applications and software. We know that capex spending is strong but who will benefit most from these investments other than Nvidia?
Nvidia Delivers
Nvidia reported Q4 EPS of $1.62 versus a FactSet consensus of $1.54 and revenues of $68.13 billion versus a FactSet consensus of $66.13 billion. That is a solid beat particularly on revenues and the stock is trading up an additional 3.5% after hours.
Guidance is also strong. Q1 revenue guidance of $76.44 billion to $79.56 billion against a FactSet consensus of $72.93 billion is a significant raise and the stock is running. There will be additional color on the conference call but this is a beat of high expectations that technically sets up a potential breakout from a months-long trading range.
The Nasdaq 100 and S&P 500 are both trading higher after hours as well. That is due in part to Nvidia itself but there is some positive sympathy for the broader market.
Game Plan
The big test will be Thursday's close. If buyers are steady and can deliver a strong finish that will be supportive of sustained upside momentum. The AI destruction narrative that dominated Monday now has to compete with a Nvidia report that confirms capex spending is strong and returns are real. That changes the conversation.
Have a good evening. I'll see you Thursday.
At the time of publication, Rev Shark was long NVDA.
