NVIDIA's Earnings: The AI Powerhouse Steering U.S. Equity Trends Amid Market Shifts
1min read Guotai Junan's recent report emphasizes that the AI industry's prospects are central not just to leading U.S. stock valuations, but also as a crucial indicator for the broader U.S. economic development and overall profitability of American equities. Despite the high valuations in the U.S. market, the rapid growth of the AI industry and its potential to deliver earnings have buoyed optimistic expectations, which could continue to mitigate elevated valuations. Looking ahead, the "soft landing" scenario for the U.S. economy remains the baseline, with an inclination towards increased risk appetite. This scenario suggests a stronger willingness among investors to embrace risk, potentially leading to sustained capital inflows into technology, the core driver of the U.S. economy.
NVIDIA's earnings announcement has emerged as a significant event, drawing considerable market focus following the presidential election and interest rate cuts. While enthusiasm for "Trump trade" and "Fed rate cut trade" has tapered, the S&P 500 index's gains have appeared to lose steam. As a result, market attention has shifted to NVIDIA’s third-quarter earnings report.
Investors are keen to extract potential indicators about the future direction of major U.S. indices from NVIDIA’s earnings. Since the beginning of the year, the S&P 500 has gained 24.7%, with a valuation multiple of 26.6 times, placing it in the 91st percentile historically. The surge in valuations is largely underpinned by rapid AI sector growth, which has spurred high earnings growth rates and optimistic forecasts for the U.S. markets. NVIDIA’s financial performance can partly reflect the broader AI industry's development trajectory.
In essence, NVIDIA's stock performance reflects broader economic prospects in the U.S. On a surface level, NVIDIA holds the highest weight within major U.S. indices, thus shaping overall market trends. This year, seven leading tech companies, including NVIDIA, have contributed significantly to a 24% rise in major indices. On a deeper level, AI technology is widely applied across sectors such as production, services, autonomous driving, healthcare, education, and corporate operations, enhancing productivity and economic growth. In AI chips, NVIDIA dominates a substantial market share, with its products considered essential to technological progress. Investing in NVIDIA is, to some extent, akin to betting on the future prospects of the U.S. economy and the broader profitability outlook of the U.S. equity market.
NVIDIA’s post-earnings performance has faced pressure, as overly high market expectations saw corrections. Despite surpassing market forecasts with its third-quarter results, NVIDIA’s stock price dropped by over 5% after hours, reflecting the gap between investor expectations and the most optimistic projections. As the U.S. economy demonstrates resilience and the AI sector's outlook continues to elevate investor expectations, the upward trend in U.S. equities persists.