Nvidia Earnings Preview: Chip Stocks Lead Nasdaq to Record Highs—Can the AI Rally Persist?

As global investors focus on the bellwether of artificial intelligence, US stocks showed renewed strength at a critical juncture in the earnings season. On Wednesday's close, the Nasdaq Composite and the S&P 500 both set fresh record highs, driven primarily by the semiconductor sector led by Nvidia.

Chip Stocks Surge, Nasdaq Hits New Highs

On the eve of Nvidia's earnings release, market sentiment was a mix of caution and anticipation. While some investors opted to wait on the sidelines, many traders placed early bets on the continued surge in AI computing demand. According to Dow Jones Market Data, the Philadelphia Semiconductor Index posted notable gains, with heavyweight stocks such as AMD, Broadcom, and TSMC ADRs recording substantial advances, lifting the Nasdaq to a third consecutive closing high.

Notably, this rally was not driven solely by a few leaders. From semiconductor equipment to chip design and downstream cloud service providers, the entire AI supply chain saw broad-based gains. Analysts point out that this intra-sector synergy reflects growing confidence in the AI capital expenditure cycle, spreading from individual companies to the whole industry.

Nvidia Earnings: A Key Variable for Market Direction

As the world's most valuable chip company, Nvidia's quarterly results have become a core barometer for the AI industry's health. The market widely expects the company to again deliver revenue and profit that beat expectations, but the real focus is on the growth rate of its data center business and the shipment guidance for its next-generation Blackwell architecture chips.

"Nvidia's earnings are no longer just a fundamental event for the company itself, but an anchor for the valuation system of the entire US tech sector," wrote a Wall Street strategist in a research note. Over the past four quarters, Nvidia's results have each moved the Nasdaq by more than 1% on the day, a level of market linkage rarely seen among large-cap tech stocks.

Options market data indicates that the expected post-earnings move for Nvidia is priced at around ±8%, meaning that regardless of the outcome, it could trigger significant volatility in the chip sector and the broader market. Some traders even refer to this earnings report as a "mini-Fed decision," underscoring its market weight.

Debate Over the S&P 500's "AI Dependency"

With the Nasdaq and S&P 500 continuing to strengthen, a structural issue has resurfaced: is the index too concentrated in a handful of AI chip stocks? According to statistics, Nvidia alone has contributed roughly a quarter of the S&P 500's year-to-date gains. When including AI infrastructure buyers like Microsoft, Google, and Amazon, the proportion is even higher.

This concentration risk is amplified during earnings season. If Nvidia's guidance falls short, it could trigger a chain reaction, pressuring not only chip stocks but also cloud computing and software services sectors through sentiment shocks. However, optimists argue that the AI revolution is still in its early stages, and the trend of corporate IT budgets shifting toward AI is irreversible, so short-term volatility does not alter the long-term upward logic.

Macro Tailwinds, but Inflation Concerns Persist

Beyond corporate earnings, macro liquidity is also providing support to the stock market. According to the Federal Reserve's recent meeting minutes, officials are cautiously optimistic about inflation cooling, and market expectations for a September rate cut remain elevated. Interest rate futures show traders are pricing in at least two rate cuts this year, which provides room for valuation expansion in high-growth stocks.

However, the upcoming PCE price index remains a potential risk. If inflation data surprises to the upside, it could force the Fed to delay its easing cycle, thereby dampening risk appetite. Additionally, demand at the Treasury's new bond auctions will influence long-term yields, indirectly affecting the discount rate for tech stocks.

Outlook: Three Scenarios After the Earnings Report

In summary, Nvidia's earnings will likely serve as a watershed for short-term market direction. Scenario one: If results and guidance both exceed expectations, chip stocks could drive the Nasdaq higher, and the S&P 500 might challenge new round-number levels. Scenario two: If results meet expectations but guidance is conservative, the market may enter a high-level consolidation, with funds rotating into defensive sectors. Scenario three: If results disappoint, a deeper pullback could occur, but given the long-term nature of AI investment, such a dip might be seen as a buying opportunity.

For average investors, rather than guessing the earnings numbers, it is more important to focus on management's commentary regarding CoWoS packaging capacity, HBM supply, and China sales restrictions. These details will reveal the true supply-demand dynamics of the AI supply chain better than revenue alone. Regardless of the outcome, Nvidia's earnings will be one of the most significant macro events for the US stock market in 2025.