NVIDIA's Q3 Results are Investors' Focus after the Fading Market Stimulus Arising from the Election

Nvidia’s upcoming earnings report on November 20 is poised to play a pivotal role in determining the direction of the U.S. stock market, particularly in the technology sector and artificial intelligence (AI) trade. Over the past two years, Nvidia’s shares have surged nearly 800%, driven by its leadership in AI, making it the world’s most valuable semiconductor company. Its results are not just an indicator of its performance but also the broader market’s appetite for tech stocks, the AI sector, and the risk sentiment.

The company is expected to report net income of $18.4 billion for its fiscal third quarter, with revenue up over 80% to $33 billion, according to LSEG data. However, LSEG expected that Nvidia’s recent earnings surprises became more modest, beating estimates by just 6% last quarter. This mediocre forecast stems from increased difficulty in meeting market expectations and new product delays.

Nvidia’s new Blackwell AI chips, anticipated for their advanced performance, are facing technical setbacks related to overheating in server configurations. Sources said the overheating arises when the chips are integrated into server racks that hold up to 72 units. Nvidia has requested multiple design changes from suppliers to address this overheating problem. This product issue is expected to delay its second-quarter chip's delivery to its clients like Meta, Google, and Microsoft.

Nvidia responded that the company has worked closely with suppliers and that engineering iterations are common and expected. Despite these obstacles, analysts said its Mag 7 could drive earnings growth.

Nvidia’s earnings affect not only its stock price but also the valuation of its sector. According to LSEG data, its performance helped the S&P 500 which currently holds lofty price-to-earnings ratios above 22x to sustain the high valuation. The broader S&P 500 index is up 23% year-to-date but has recently pulled back following that Trump won the election.

Investor focus has been shifted to his transition plans because Trump’s appointees have strengthened weak market sectors. Investor eyes are also on the Federal Reserve’s less accommodative stance on monetary policy given that the Fed's statement that it would not cut rates again on Thursday pulled stocks down.