All eyes will be on Nvidia next week as investors consider what’s next for the AI trade. Stocks have reached all-time highs this week, crashing through one milestone after another as cooler inflation data cheered investors worried about a Federal Reserve that could keep interest rates higher for longer. The Dow Jones Industrial Average topped the 40,000 threshold for the first time ever. The S & P 500 broke above 5,300, also for the first time. The S & P 500 has notched record close after record close in 2024. But what’s different about this most recent advance is that the broad market benchmark has managed to notch its latest all-time high without the help of the “Magnificent Seven” that so wholly dominated the early part of this year’s rally. This quarter, the top-performing S & P 500 sector is utilities, higher by 9%, followed by communication services, up by 4%. The worst-performing sector is consumer discretionary, which is down by more than 2% and includes the megacaps Amazon and Tesla. But Nvidia’s earnings results next week could reinvigorate a trade that still has the power to propel markets higher, backed by investors animated by the transformative potential of AI. The $2.3 trillion company is the third-largest S & P 500 stock by market cap, and has an expected move of roughly 8%, meaning the stock could move up and down as much on its quarterly report. In other words, the results could be a market-moving event given the chipmaker’s sheer size and popularity. “Nvidia will be the stock that doesn’t make it as boring as it has been on this rally because when utilities are leading and financials are leading, they’re not headline makers,” said Jay Woods, chief global strategist at Freedom Capital Markets. “Nvidia is a headline maker, so I can’t wait to see how the market reacts to that.” NVDA YTD mountain Nvidia For investors, the results could help the major averages continue to move higher — or put a dent into their momentum. On Friday, the 30-stock Dow was headed for its fifth straight winning week, a streak it hadn’t made since February. The S & P 500 and Nasdaq Composite were each on pace for a fourth straight week of gains. Market mover By now, investors are used to Nvidia beating expectations in its earnings reports, as exorbitantly high as they are. In fact, Piper Sandler’s Harsh Kumar, who has a buy rating on the stock, said he anticipates the chipmaker will beat revenue expectations by $1.5 billion to $2 billion in its upcoming report. Over the last three quarters, Nvidia’s top-line beat by $1.9 billion on average, he noted. Kumar expects that means markets could take it in stride if the chipmaker meets or somewhat exceeds expectations. As far as AI investors are concerned, however, what’s most important is what CEO Jensen Huang may share in terms of future demand for the Nvidia’s products. While the firm’s newest generation of AI graphics processors called Blackwell are expected to be “astoundingly better” compared to competitors, Kumar said, investors are seeking signs that demand continues to remain robust, and orders remain on track. Strong guidance has the potential not only to lift Nvidia, but also the broader AI trade as software names take more of a backseat lately. “That’s a fresh catalyst” for that theme,” Horizon Investments’ Zachary Hill said. But investors may be less forgiving of a disappointment from the market darling of the past year. Chris Zaccarelli, investment chief at Independent Advisor Alliance, said he could see the broader markets sell off by “more than 1%” — in fact, by 1.5%, 2%, or “something worse” — if Nvidia’s messaging spooks investors, largely because of the place the chipmaker holds in peoples’ imaginations. “Nvidia really is the poster child for the AI revolution, for all the excitement people have about potential productivity gains and a new era of computing through artificial intelligence,” Zaccarelli said. “So if they can continue to exceed expectations, I think that does a lot towards driving sentiment higher.” “Conversely, if they give a bad forecast or a disappointing earnings result, I think a lot of the positive sentiment that we have had this week could reverse,” Zaccarelli added. Still, the view on Nvidia outside of next week’s earnings report is more sanguine. Regardless of how Nvidia’s stock performs after the firm’s results, investors expect the long-term story is still intact, and many anticipate that any dips in stock price will be quickly bought up. Nvidia is up nearly 87% this year, but has only gained more than 2% this quarter. “Regardless of how they perform, I still think over the long term, this should be in everyone’s portfolio to some magnitude,” Freedom Capital Markets’ Woods said. “It is the leading AI play.” Sustaining all-time highs Nvidia’s earnings will also be a key catalyst at a time when technicians are watching to see whether stocks can sustain the record levels they reached this week. Fairlead Strategies’ Katie Stockton said she is watching to see if the S & P 500 can keep above the 5,260 resistance level through next Friday, a confirmation of the breakout that would be a bullish development for stocks. But the technician is also concerned that there could be further weakness ahead, citing mixed signals in momentum indicators. “The short-term gauges, momentum wise, of course, point higher, but the intermediate-term gauges point mostly lower,” Stockton said. “So, we still have a situation where we feel the market is vulnerable to one more downdraft to the corrective phase that began in April.” “So, we’re sort of watching and waiting to see how it plays out,” Stockton added. Week ahead calendar All times ET. Monday May 20 No notable events. Earnings: Palo Alto Networks Tuesday May 21 No notable events. Earnings: AutoZone , Lowe’s Companies Wednesday May 22 10 a.m. Existing Homes Sales (April) 2 p.m. FOMC Minutes Earnings: Nvidia , TJX Cos ., Analog Devices , Target, Raymond James Thursday May 23 8 a.m. Building Permits 8:30 a.m. Chicago Fed National Activity Index 8:30 a.m. Continuing Jobless Claims 8:30 a.m. Initial Claims 9:45 a.m. PMI Composite preliminary 9:45 a.m. S & P PMI Manufacturing preliminary 9:45 a.m. S & P PMI Services preliminary 10 a.m. New Home Sales 11 a.m. Kansas City Fed Manufacturing Index Earnings: Intuit , Ralph Lauren Friday May 24 8:30 a.m. Durable Orders — CNBC’s Nick Wells contributed to this report.
