Stocks Fall As Nvidia Set To Test AI-Driven Rally: Markets Wrap

(Bloomberg) -- Wall Street traders kept a lid on stocks ahead of results from Nvidia Corp. — the giant chipmaker at the heart of the artificial-intelligence frenzy that has powered the bull market.

Just hours away from the company’s quarterly numbers, investors around the world are waiting to see whether Nvidia will be able to match the sky-high expectations surrounding the technology that has been dubbed an opportunity of a lifetime. Given its massive influence on broader indexes, Goldman Sachs Group Inc.’s trading desk has called Nvidia “the most important stock on planet earth.” With eye-popping gains, the chipmaker has been responsible for one-third of the Nasdaq 100’s advance this year.

“Nvidia has been the ‘poster child’ of AI enthusiasm because NVDA makes the type of semiconductor chips that power generative AI and demand for those chips has gone through the roof,” said Tom Essaye, founder of The Sevens Report. “The AI-driven rally in the ‘Mag Seven’ is largely justified by the fact that they’re making a lot more money than they were previously.”

The S&P 500 dropped to around 4,960, while the tech-heavy Nasdaq 100 underperformed — with Nvidia down 2%. The chipmaker is still the best performer in the US equity benchmark this year, up almost 40%.

Nvidia really has acted as a sentiment gauge in the market, and will either confirm or potentially put a ding in the lofty AI expectations, according to Ken Mahoney, chief executive officer at Mahoney Asset Management.

Now one thing to keep in mind, Mahoney says, is that it’s not always about the earnings report — but the market reaction to it. 

Prices for short-term calls and puts imply a roughly 11% move in the chipmaker’s shares on Thursday — the session after its earnings report, according to data compiled by Bloomberg. That would sway Nvidia’s market capitalization by some $180 billion, one of the largest single-session moves on record.

“The market is expecting a pretty large swing in terms of implied volatility,” said Mahoney. “There are also times with this implied volatility, that the stock doesn’t have a major reaction at all and stays in a relatively similar spot to where it closed before the report — and we can’t take that off the table as a possibility.”

Traders will also sift through the minutes of the Federal Reserve’s January meeting for clues on the outlook for the central bank’s next steps. Fed Bank of Richmond President Thomas Barkin said recent economic data highlighted how price pressures in some sectors are still too high, despite improvement in the overall inflation picture.

Corporate Highlights:

• HSBC Holdings Plc reported fourth-quarter profit fell 80% after taking unexpected charges on holdings in a Chinese bank and from selling its French retail operations. Shares slid in London.
• Palo Alto Networks Inc., a cybersecurity company, cut its annual revenue forecast, stoking concerns that customers are reining in spending despite an uptick in attacks.
• Cisco Systems Inc. plans to borrow from the US high-grade bond market to partly finance its proposed $28 billion acquisition of Splunk Inc., as issuers rush to capitalize on strong investor demand.
• Toll Brothers Inc., a large US luxury homebuilder, raised its guidance for full-year deliveries after reporting a strong start to the spring selling season.

Key Events This Week:

• Eurozone S&P Global Services PMI, S&P Global Manufacturing PMI, CPI, Thursday
• US initial jobless claims, US existing home sales, Thursday
• ECB issues account of January meeting, Thursday
• Fed Governor Lisa Cook and Minneapolis Fed President Neel Kashkari speak, Thursday
• China property prices, Friday
• Germany IFO business climate, GDP, Friday
• ECB publishes 1- and 3-Year inflation expectations survey, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.3% as of 11:06 a.m. New York time
• The Nasdaq 100 fell 0.8%
• The Dow Jones Industrial Average fell 0.2%
• The Stoxx Europe 600 fell 0.2%
• The MSCI World index fell 0.3%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at $1.0801
• The British pound fell 0.1% to $1.2607
• The Japanese yen fell 0.2% to 150.29 per dollar

Cryptocurrencies

• Bitcoin fell 1.9% to $51,032.44
• Ether fell 2.7% to $2,908.7

Bonds

• The yield on 10-year Treasuries advanced one basis point to 4.29%
• Germany’s 10-year yield advanced six basis points to 2.43%
• Britain’s 10-year yield advanced five basis points to 4.09%

Commodities

• West Texas Intermediate crude rose 0.7% to $77.56 a barrel
• Spot gold was little changed

This story was produced with the assistance of Bloomberg Automation.

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