Nvidia’s earnings are no elixir to reverse the market’s sudden momentum breakdown

When you’re a $3 trillion, rapidly growing chip designer, your quarterly earnings reports aren’t just your quarterly earnings reports; they’re an important flashpoint for the stock market at large.

And Nvidia’s Q4 earnings release arrived at a time of seeming vulnerability for the market, with high-flying momentum stocks nosediving since Walmart issued an underwhelming earnings outlook. Among them: many AI infrastructure-linked companies, seemingly rattled by reports that Microsoft might already have too many data centers.

The chip designer enjoyed a small advance after delivering a top- and bottom-line beat, but the read-through for the broader market remains inconclusive.

Make no mistake about it — traders were banking on Nvidia to stanch the bleeding in momentum stocks. Ahead of the event, 22V Research’s chief market strategist polled clients on whether the chip designer’s quarterly report would be a catalyst for formerly high-flying stocks to bounce after their recent rough run of form. The results:

“61% of investors believe that NVDA earnings will be a catalyst for a reversal in the momentum factor. 34% believe it will not be a catalyst. Some investors noted that NVDA has already been priced in, the momentum reversal has already happened, or NVDA is an idio[syncratic] story. As we wrote in our note today, ‘from what we are told and have been forwarded, the sell-side is pretty uniform on call for Momentum to bottom ahead of NVDA tonight. Or NVDA will be a catalyst for a reversal. That makes us a bit nervous. We have no idea what NVDA will say.’”

The key question right now, after the stock’s relatively tepid post-earnings response: is this a case of traders not caring about what on the surface appears to be good news, or is the reality that there’s some points of weakness to pick at under the hood? (Or, quite possibly, something else.)

If it’s the former, that’s fairly scary. One of the hallmarks of a trend that’s passed its best-before date is when positive news fails to catalyze a positive stock market reaction.

To make the case for the latter, while Nvidia is raking in dough from the AI-driven data center boom, providing more complex hardware is weighing on its profitability.

“Non-GAAP gross margins for the fourth quarter decreased from a year ago and sequentially, primarily due to a transition to more complex and higher cost systems within Data Center,” the filing said. That trend is poised to continue, for now. hough Nvidia’s Q1 revenue forecast was upbeat, its adjusted gross margin guidance came in well shy of estimates.

During the conference call that followed earnings, CFO Colette Kress said she expects adjusted gross margins “to be back to the mid-70s later this year.” However, right now the company is focused on expediting its manufacturing capabilities relating to its Blackwell GPU roll-out, which she called the “fastest product ramp” in the company’s history.

The plethora of options activity tied to Nvidia — which has tended to disappoint buyers betting on a big earnings move lately — adds another layer of difficulty of trying to discern what the early reaction actually means.

So in the interim, a market looking for Nvidia to provide direction and leadership may seemingly have to wait a little longer, or search for another catalyst.