Nvidia Is the Heart and Soul of AI, and Earnings Won’t Stop It
Bears counting on a ‘sell the news’ reaction should focus on support instead.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
The indexes have been doing a nice job of holding on to the gains triggered on Friday by Jerome Powell’s comments at Jackson Hole. Powell surprised the market with a dovish tone, which has helped to boost the odds of several Fed interest rate cuts later this year.
Despite the strong price action, economic bears are not giving up on their belief that President Trump's policies are likely to trigger a surge in inflation and an economic downturn. There have been warnings about the potential for stagflation for most of the year, but the predictions have been dead wrong so far and just helped to fuel additional upside.
The bears are also whining about valuations and technically extended stocks. Earnings on Wednesday night from Nvidia NVDA will test that theory. Nvidia has doubled from the lows it hit in April, following the Liberation Day tariffs, and has been hovering around its all-time highs for several weeks.
Technically, Nvidia is set up for a sell-the-news reaction to earnings, but the bears have had little luck with that strategy in 2025. Time and again, the market and extended stocks have gone even higher when good news is released. The logic of taking some gains into strength just hasn’t worked very well.
A big part of the problem is that the sell-the-news thinking is just too obvious. It is already discounted to some extent, and if there is a pullback, the dip buyers are prepared to take advantage of it.
There is a very great likelihood that Nvidia will beat again on the top and bottom lines and raise guidance. Will it be enough of a surprise to bring in more chasers? Doesn’t everyone already own Nvidia?
The issue with Nvidia isn’t whether it will be chased but how strong the support will be if there is a pullback. Nvidia is not going to suddenly collapse unless there is some monumental surprise that no one saw coming. Nvidia is the heart and soul of AI, and there is nothing to indicate that this theme is slowing down.
While Nvidia is going to suck up all the oxygen Wednesday, there is another market positive right now that is gaining traction — the relative strength of the Russell 2000 small-cap index IWM. Smaller stocks have recently been outperforming the Magnificent Seven, and many of these stocks still have attractive valuations and good charts. Although the bears complain about market valuation, they totally ignore the fact that valuation is distorted by a few big-cap names. This market is not expensive if you look at it based on individual stocks rather than on the indexes.
Expectations for Nvidia are very high, but there are billions of dollars on the sidelines looking to buy a pullback.
At the time of publication, Rev Shark was long NVDA.
