NVIDIA Corporation (NVDA.US) financial report will be released tonight: Is it a "boost" for AI or the "final blow"?

The highly anticipated financial report of NVIDIA Corporation (NVDA.US) will be released after the US stock market on Wednesday. At that time, Wall Street will have a glimpse of the flow of billions of dollars in AI spending, but how the sluggish stock market will react is still unknown. "This financial report can be called 'NVIDIA Corporation sets the tone, the market follows,'" said Scott Martin, Chief Investment Officer of Jingshun Wealth Management Company. The company holds shares of NVIDIA Corporation and many other large technology peers. Analysts expect that the net profit and revenue growth of this chip giant for the third quarter of the 2025 fiscal year will both exceed 50%. The reason is quite clear: data shows that Microsoft Corporation, Amazon.com, Inc., Alphabet, and Meta Platforms, these four companies together account for more than 40% of NVIDIA Corporation's sales, and their AI spending in the next 12 months is expected to increase by 34% to reach $440 billion. The risk is that if a large AI spender (especially the unlisted OpenAI) has to reduce its investment commitment, these data may lose their reference value. "These participants in the AI field deliberately keep raising market expectations, and now they not only have to achieve performance targets but also continuously meet the increasing expectations of the market," said Michael O'Rourke, Chief Market Strategist at Jones Trading Company. "For listed companies, this is a dangerous game." As long as these companies stick to their targets, NVIDIA Corporation should benefit. With the good performance of NVIDIA Corporation, the stock market usually has a correlation it is both the largest component stock in the S&P 500 index and the core of the AI market that has pushed the index to new highs in the past year. However, as investors' concerns about AI spending intensify, and with NVIDIA Corporation's stock price plunging by more than 12% since hitting a peak four weeks ago, the market's interpretation of the financial report results will be crucial. "There are definitely those who believe that if NVIDIA Corporation's financial report shows strong performance, indicating higher sales and business activity, then everything will turn around," said Martin. The strong performance and optimistic outlook of NVIDIA Corporation may temporarily ease the minds of investors. Currently, investors are worried about the valuation of AI stocks, the cyclical nature of financing in AI trading, and the lack of obvious returns from huge AI infrastructure spending. These concerns have triggered market fluctuations in tech stocks and the overall stock market, resulting in the S&P 500 index experiencing its worst four-day decline since April. Despite recent selling, NVIDIA Corporation's stock price has risen 35% this year, more than twice the 17% gain of the Nasdaq 100 index. The pullback has also made the company's market value relatively attractive: NVIDIA Corporation's current expected P/E ratio is about 29 times, well below its 10-year average of 35 times, and only slightly higher than the Nasdaq 100 index's P/E ratio of about 26 times. "Given NVIDIA Corporation's growth rate, a P/E ratio of 30 times is completely reasonable," Martin said. As for the financial report itself, investors will focus on the strong performance of its Blackwell series chips this series is expected to drive the company's next stage of growth. Profit margin expansion is also crucial, especially in the data center business, which contributed nearly 90% of revenue in the second quarter. However, as with common situations in the AI stock sector, the final interpretation on Wall Street may depend on the company's outlook. "We expect them to deliver a fairly robust financial report," said Jack Seltz, Portfolio Manager at AllianceBernstein Global High Income Fund Inc. The company holds a large number of NVIDIA Corporation shares. Seltz will closely monitor the company's performance guidance for the next quarter, with revenue guidance expected to at least exceed Wall Street consensus, but "it's hard to say whether they will issue conservative expectations," he said. Analysts believe that NVIDIA Corporation's robust revenue growth will slow down in the coming years: revenue growth is expected to be close to 60% in the 2026 fiscal year (as of January), 41% in the 2027 fiscal year, and 22% in the 2028 fiscal year. Even if NVIDIA Corporation delivers the robust performance that most on Wall Street expect, given the cooling investor sentiment, this may not necessarily a rise in stock price. "I think what the current market is really struggling with is how big the total potential market size of all this AI infrastructure really is," said Melissa Otto, Director of Technology, Media, and Telecommunications Research at Visible Alpha. Peter Thiel's hedge fund sold all of its NVIDIA Corporation shares in the third quarter, and SoftBank Group also exited its position to fund other AI investments. Sion Asset Management, managed by Michael Burry, known for shorting the real estate market during the 2008 financial crisis, disclosed that it bought put options on NVIDIA Corporation, as Burry had previously warned of bubble risks related to AI. Looking more broadly, an analysis of 909 hedge funds' 13F filings found that the proportion of funds increasing and decreasing their positions in NVIDIA Corporation was almost equal in the three months ending September 30. It remains to be seen how much of the selling is for profit-taking rather than being bearish on NVIDIA Corporation and the current situation of the AI industry. NVIDIA Corporation has always been a star stock," Otto said. "Perhaps taking some profits, thinking about where the next round of growth will come from, is reasonable."