The ultimate test of the AI wave: NVIDIA Corporation (NVDA.US) releases its financial report, will it continue the bull market in technology stocks or ignite the "wall of worries"?

Noticed that, for most of the time since the beginning of this year, chip stocks have been providing the main driving force for the market to rise. At present, the upcoming financial report of NVIDIA Corporation (NVDA.US) may either confirm that there is still room for further growth in this trend, or add another brick to the "wall of worries" that investors have already built up. The leading artificial intelligence semiconductor company will announce its performance after the close of trading on Wednesday. Wall Street generally expects that the strong financial report season for chip manufacturers will see another impressive number - as major tech companies continue to invest heavily in cash and in building AI infrastructure. Therefore, what investors really need to see are signals about the prospects for future growth. Joannie Feeney, portfolio manager of Adviser Capital Management, which holds NVIDIA Corporation shares, said, "NVIDIA Corporation's performance, guidance, and discussions on conference calls can give investors more confidence to believe that this round of AI investment expansion is not just for one quarter, not just for 2026, but will continue into 2027, 2028, and beyond." "This would be reassuring." All eyes are focused on NVIDIA Corporation's performance However, if the results disappoint, it will confirm the worries of some investors: this sector may have already gone too far. The Philadelphia Semiconductor Index has surged by about 60% this year, but experienced a cumulative decline of 6.4% over the past two trading days on Friday and Monday, as inflation concerns have dampened sector sentiment. NVIDIA Corporation's stock price has risen by about 18% in 2026 and rebounded by about 34% since hitting bottom in late March, but has retraced 6.4% in the last three trading days; however, it still outperforms the technology-heavy Nasdaq 100 index (up about 14% this year). Feeney said, "Unfortunately, NVIDIA Corporation has raised market expectations to the point where they need to exceed expectations every quarter and raise guidance - as long as they don't, it will be disappointing." Although NVIDIA Corporation's performance in 2026 is not as impressive, it is still the "largest stock" in the market: out of the 7.4% gain in the S&P 500 index this year, NVIDIA Corporation has contributed nearly one-fifth. Four other chip companies - Micron Technology, Inc., Broadcom Inc., AMD, and Intel Corporation - also ranked among the top seven "biggest contributors to the S&P 500 gain in 2026", a level of "sector leadership concentration" rarely seen in this cyclical industry. Looking at it from the perspective of "AI cash saturation of the economy", investors certainly have plenty of reasons to be optimistic: the four big buyers - Amazon.com, Inc., Alphabet, Microsoft Corporation, and Meta - are planning to spend as much as $725 billion in capital expenditures this year alone, and even more in 2027. Chips play a big role in this spending, and NVIDIA Corporation still holds an overwhelming share in the AI accelerator market. The growth is so fast that this stock has started to look "cheap". According to compiled data, the consensus expectations for NVIDIA Corporation's net profit for the 2027 fiscal year (as of January of that year) have been raised by 13% in the past three months, and revenue expectations have been raised by 12%; driven by this, NVIDIA Corporation's current stock price corresponds to a forward earnings expectation of less than 24 times, well below its 10-year average of about 36 times. Jeff Brzezicki, Co-Chief Investment Officer of the global multi-asset management firm Lord Abbett, with assets under management of approximately $567 billion, said, "Valuation issues are secondary, the fundamental growth narrative is the main driver, but the current valuation levels are not uncomfortable." He believes that NVIDIA Corporation's valuation "is judged relative to its earnings and cash flow - it's not like a bubble here." Several chipmakers have already presented "impressive" results in this financial reporting season: Intel Corporation, AMD, Texas Instruments Incorporated, NXP Semiconductors NV, and Marvell all recorded double-digit increases after announcing their results. Bloomberg compiled data shows that 93% of chip stocks have exceeded expectations so far this season, with an average outperformance of nearly 25% (compared to only about 6.6% in the previous season). But no matter what numbers NVIDIA Corporation presents, it is not easy to replicate that "jump in stock price immediately after announcement": first, its size is much larger than its peers, requiring a more exaggerated enthusiasm from buyers to truly drive the stock price; and second, it has to face competition from rivals like AMD, while core customers Alphabet and Amazon.com, Inc. are also developing their own chips, creating substantial competition. This also explains why NVIDIA Corporation is no longer the "hottest stock in the market" - that title now belongs to storage and memory suppliers like SanDisk, Seagate, and Micron. "You might not believe it, but the 'story feeling' leading up to this financial report is not as sexy as some of the other more attractive themes in the market," said Thomas Martin, Senior Portfolio Manager at GLOBALT Investments. "But it (NVIDIA Corporation) is a giant." While NVIDIA Corporation's growth prospects remain strong, market expectations are that its growth rate will gradually decline in the coming years: the company's revenue is expected to increase by about 72% year-on-year for the 2027 fiscal year, and by about 34% for the 2028 fiscal year, before continuing to slow down. "The focus of the narrative is increasingly shifting towards 'how long can the growth be sustained', rather than just the performance of a single quarter," said Neville Javeri, Global Investment Portfolio Manager at Allspring who also holds NVIDIA Corporation. He said he will closely watch for any details related to Blackwell chip sales and demand for the next generation Rubin product line. Of course, even if a strong financial report is delivered, it does not guarantee that NVIDIA Corporation will rise the next day: in the past three financial reports, the stock price weakened the day after - even if the results were solid. Current options market pricing shows that there may be about 5.5% two-way volatility in the stock price after this financial report; and according to analysts' average target price, Wall Street believes that the stock has about 26% upside potential in the next 12 months. "If NVIDIA Corporation can prove that the new generation of chips is quickly gaining momentum, and that the market size reachable is larger than expected - because the expansion cycle is longer than expected - that will greatly reassure investors and make them more comfortable holding this leading company driving the construction of AI," Feeney of Adviser Capital concluded.