For much of the year, semiconductor stocks have been a primary driver of the broader market's advance. The upcoming earnings report from NVIDIA (NVDA.US) now stands as a pivotal event that could either validate further room for this rally or add another brick to the wall of investor worries that has been steadily building. The AI chip leader is scheduled to report after the market closes on Wednesday. Wall Street widely anticipates another strong figure in what has been a robust earnings season for chipmakers, fueled by continued massive cash investments from major tech companies building out their AI infrastructure. Consequently, the key focus for investors will be signals regarding the sustainability of future growth.
Joanne Feeney, a portfolio manager at Advisors Capital Management which holds NVIDIA stock, stated, "NVIDIA's results, guidance, and the discussion on the call can give investors more confidence that this expansion in AI spending isn't just a one-quarter phenomenon or something for 2026 only, but will extend into 2027, 2028, and beyond. That would be reassuring." All eyes are on NVIDIA's performance. However, a disappointing outcome could validate concerns among some investors that the sector may have run ahead of itself. The Philadelphia Semiconductor Index has surged roughly 60% year-to-date but tumbled 6.4% over Friday and Monday combined, weighed down by inflation concerns.
NVIDIA's stock has gained approximately 18% in 2026 and rebounded about 34% from its late March lows, though it has given back 6.4% over the last three trading sessions. It still outperforms the tech-heavy Nasdaq 100 Index, which is up about 14% year-to-date. Feeney noted, "Unfortunately, NVIDIA has set the market expectation that it must beat estimates and raise guidance every single quarter. Anything less will be viewed as a disappointment." Despite a relatively less spectacular performance in 2026, NVIDIA remains the market's "largest single stock," contributing nearly one-fifth of the S&P 500's 7.4% gain this year. Four other chip companies—Micron Technology, Broadcom, AMD, and Intel—also rank among the top seven contributors to the S&P 500's point gain in 2026, a rare concentration of sector leadership in this cyclical industry.
From the perspective of "AI cash saturating the economy," investors have solid reasons for optimism. The four major buyers—Amazon.com, Alphabet, Microsoft, and Meta Platforms, Inc.—plan capital expenditures of up to $725 billion this year alone, with even more expected in 2027. Chips are a central component of this spending, and NVIDIA maintains a dominant share in the AI accelerator market. Growth has been so rapid that the stock has begun to appear relatively inexpensive. According to compiled data, consensus estimates for NVIDIA's net profit for fiscal year 2027 (ending January that year) have been raised by 13% over the past three months, with revenue estimates up 12%. This has driven the current stock price to trade at less than 24 times forward earnings estimates, significantly below its 10-year average of around 36 times.
Jeff Breeze, Co-Chief Investment Officer of Multi-Asset at Neuberger Berman, which manages approximately $567 billion in assets, commented, "Valuation is a secondary concern; the primary engine is the fundamental growth story. The current valuation level is not uncomfortable." He believes NVIDIA's valuation, relative to its earnings and cash flow, "does not resemble a bubble." This earnings season, several chipmakers have already delivered blowout results. Intel, AMD, Texas Instruments, NXP Semiconductors, and Silicon Motion Technology have all seen double-digit rallies following their reports. Data compiled by Bloomberg shows that 93% of chip stocks have exceeded expectations this quarter to date, with an average beat of nearly 25% (compared to about 6.6% last quarter).
However, regardless of the numbers NVIDIA posts, replicating an immediate post-earnings surge will be challenging. First, its sheer size dwarfs its peers, requiring significantly greater buying enthusiasm to materially move the stock price. Second, it faces competition from rivals like AMD, while its core customers, Alphabet and Amazon.com, are scaling their own in-house chips, creating substantive competition. This explains why NVIDIA is no longer the "market's hottest stock"—a title now held by memory and storage suppliers like SanDisk, Seagate Technology, and Micron. "It may sound surprising, but the narrative heading into this earnings report feels less compelling than some of the other, more exciting themes in the market," said Thomas Martin, Senior Portfolio Manager at GLOBALT Investments. "But it (NVIDIA) is a behemoth."
While NVIDIA's growth prospects remain strong, market expectations are for a gradual deceleration in its growth rate over the coming years. Revenue growth for fiscal year 2027 is projected around 72% year-over-year, slowing to about 34% for fiscal 2028, with further deceleration thereafter. "The narrative is increasingly shifting to 'how long can the growth last?' rather than just the performance of any single quarter," noted Neville Javeri, Portfolio Manager and Head of the Empiric LT Equity team at Allspring Global Investments, which also holds NVIDIA. He said he will be closely watching for any details regarding Blackwell chip sales and demand for the next-generation Rubin product line.
Of course, even a strong earnings report does not guarantee a stock price increase the following day. After the last three earnings releases, the stock weakened the next day—even when the results themselves were solid. Current options market pricing suggests the stock could move approximately ±5.5% following this report. Based on the average analyst price target, Wall Street sees about 26% upside potential for the stock over the next 12 months. "If NVIDIA can demonstrate that its new generation of chips is ramping up quickly and that the total addressable market is larger than the market thinks—because the expansion cycle is longer than expected—that would greatly reassure investors and allow them to hold more comfortably onto these leaders powering the AI buildout," concluded Advisors Capital's Feeney.
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