Nvidia’s Earnings Poised to Define AI Market Direction

Nvidia (NVDA) is set to release its fourth-quarter earnings, a pivotal moment that could restore confidence in AI stocks or reinforce recent doubts. The rise of China-based DeepSeek has challenged Nvidia’s dominance, raising questions about AI infrastructure needs. Options markets indicate a 9.9% move in either direction, the highest implied volatility since 2022.

DeepSeek’s Disruption & Nvidia’s Stock Performance

• DeepSeek’s efficiency in AI model training has reduced reliance on high-powered Nvidia chips.
• Since DeepSeek’s emergence, Nvidia’s stock has struggled to recover, lagging behind previous rebound patterns.
• For the first time since 2022, Nvidia will report earnings with shares lower than their previous quarter.

“DeepSeek opened our eyes to the fact that Nvidia is not invincible,” said Shana Sissel, CIO at Banrion Capital Management.

AI Demand Remains Strong Despite Headwinds

While DeepSeek has shaken AI confidence, big tech firms are still investing heavily in AI infrastructure:

• Microsoft, Amazon, Alphabet, and Meta have affirmed or boosted capex spending for 2025.
• Wall Street remains bullish, with nearly 90% of analysts maintaining a “Buy” rating on Nvidia.
• Analysts expect $38 billion in quarterly revenue, a 73% increase year-over-year.

“This quarter we’ve seen capex increases that are already dramatic,” said Nick Rubinstein, portfolio manager at Jennison Associates.

Microsoft Data Center Cuts Add to Investor Concerns

• TD Cowen reported that Microsoft canceled some U.S. data center leases, sparking concerns over future AI demand.
• The Magnificent Seven tech stocks have fallen over 10% from their December highs, entering correction territory.

Nvidia’s Valuation & Future Outlook

• Nvidia trades at 28 times estimated earnings, below its 10-year average and near Nasdaq 100’s multiple of 26.
• Wall Street’s 12-month price target suggests a 38% upside, among the highest in the semiconductor sector.
• Analysts believe Nvidia’s next-gen Blackwell chip could drive future growth.

“Considering Nvidia’s growth rate above 20%, this valuation is relatively fair,” said Rubinstein.

What to Watch in Nvidia’s Earnings Report

• AI chip sales trends: Will DeepSeek’s impact show in Nvidia’s data center revenue?
• Enterprise demand outlook: Are companies reducing AI spending amid economic uncertainty?
• Stock reaction: Options imply massive post-earnings volatility, making this one of Nvidia’s most critical reports yet.

“It’s really not hard to see an upside case for Nvidia,” said Matt Stucky of Northwestern Mutual Wealth Management.