All eyes on Nvidia’s earnings: A high-stakes moment for AI stocks

Key points:

• Nvidia’s earnings will set the tone for AI stocks, with sky-high expectations leaving little room for error.
• Strong AI demand continues, but supply chain constraints and competition could challenge Nvidia’s dominance.
• Market volatility is expected, with options pricing in a 7-8% move—investors should brace for sharp swings.

The AI revolution has a king, and its name is Nvidia. But will its upcoming earnings prove it deserves the throne, or are cracks beginning to form? As the dominant force in AI infrastructure, Nvidia’s report on 26 February is set to be a defining moment—not just for the company, but for the entire AI sector.

With sky-high expectations baked into its stock price, Nvidia must deliver flawless execution to keep the rally alive. If it stumbles, it could send shockwaves through AI stocks and the broader market.

The key numbers to watch
Investors are expecting another blockbuster quarter from Nvidia.

• Revenue is forecasted to hit USD 38 billion, marking a 72% year-over-year increase.
• Earnings per share (EPS) is projected to rise to USD 0.84, a 62% jump.

"Nvidia has a strong track record, having beaten Wall Street estimates in 16 of the last 18 quarters – but with expectations already sky-high, even a solid beat may not be enough to keep the stock moving higher."

Investors will also focus on gross margins, a key measure of profitability, particularly as the company rolls out its next-generation Blackwell chips. While product launches can put pressure on margins, Nvidia has maintained a strong profitability buffer, reporting a 75% gross margin last quarter, with guidance set around 73% for the upcoming quarters. Investors will be looking for reassurance that these levels remain intact despite rising production costs.

Data centre growth remains Nvidia’s primary revenue driver, fuelled by major hyperscalers increasing their AI infrastructure investments. The company has a strong track record, having beaten Wall Street estimates in 16 of the last 18 quarters – but with expectations already sky-high, even a solid beat may not be enough to keep the stock moving higher.

Why Nvidia’s earnings matter

Nvidia is no longer just a semiconductor company – it’s the backbone of artificial intelligence. Its GPUs power the AI models behind OpenAI’s ChatGPT, Meta’s AI initiatives, and Tesla’s autonomous driving technology. With a valuation exceeding USD 3.3 trillion, Nvidia’s stock performance has a significant impact on the broader market, particularly tech-heavy indices like the Nasdaq. Given its dominance, any signs of weakness in Nvidia’s report could have outsized effects on investor sentiment towards AI stocks as a whole.

Challenges to Nvidia’s AI leadership

Nvidia’s highly anticipated Blackwell architecture is expected to deliver a massive leap in AI performance, but execution risks remain. Supply chain constraints and production delays could impact shipment volumes, affecting near-term revenue growth. Investors will be keen to hear whether Nvidia can meet demand or if customers may need to look elsewhere.

At the same time, competition is mounting. In January, Nvidia’s stock dropped 17% in one day after Chinese AI firm DeepSeek claimed it could train models with significantly fewer GPUs. While Nvidia quickly rebounded, the episode raised concerns about efficiency gains reducing the company’s long-term growth trajectory. CEO Jensen Huang has dismissed these worries, emphasising that AI workloads are only becoming more computationally intensive. However, investors will be watching closely for any updates on potential efficiency threats.

AI spending isn’t slowing down—but can Nvidia capture it?

Amazon, Google, and Microsoft are investing billions into AI infrastructure, ensuring continued demand for Nvidia’s chips. Meanwhile, Europe is stepping up its AI investments. France has committed substantial private sector funding towards AI infrastructure, while the European Union is working to expand AI supercomputing capabilities to strengthen its competitiveness in the global AI race. These initiatives reflect a strategic push to reduce dependence on external technology providers.

At the same time, Elon Musk has made major investments in Nvidia hardware, reinforcing the company’s critical role in powering next-generation AI applications. However, with Blackwell supply constraints and rising competition, Nvidia must execute flawlessly to capture this demand.

“The options market is pricing in a 7-8% move post-earnings, indicating a wide range of possible outcomes.”

How investors should prepare for volatility

Nvidia’s earnings reports are consistently among the most market-moving events in tech, and this one is no different. The options market is pricing in a 7-8% move post-earnings, indicating a wide range of possible outcomes. Given Nvidia’s dominance in AI, any deviation from expectations – whether positive or negative – could have an outsized impact on the stock price.

How could the stock react? Here are three possible scenarios:

• If Nvidia beats expectations and raises guidance: Expect a strong rally, but profit-taking could limit gains.
• If Nvidia meets expectations but doesn’t raise guidance: The stock could remain flat or even dip, as much of the optimism is already priced in.
• If Nvidia misses expectations or warns on supply chain issues: A sharp decline is likely, but long-term investors may see a buying opportunity.

Given the mix of long-term investors, short-term traders, and hedge funds holding Nvidia, even a strong report could lead to volatility as some take profits. Investors should be prepared for sharp moves in either direction.

What to watch in the earnings call

Investors should pay close attention to management’s commentary on:

• Blackwell chip supply: Can Nvidia meet demand, or will production constraints limit growth?
• Margins and profitability: Will Nvidia maintain its historically high gross margins amid rising production costs?
• Tariffs and trade risks: Could regulatory challenges impact global sales, particularly in China?
• Hyperscaler AI spending: Are Amazon, Microsoft, and Google continuing to ramp up their AI investments?
• Guidance for next quarter: Does Nvidia expect growth to remain strong, or are signs of slowing demand emerging?

A defining moment for AI stocks
This earnings report isn’t just about Nvidia - it’s about whether the AI revolution can maintain its breakneck pace. If Nvidia delivers, AI stocks could surge higher. If it stumbles, the sector may see a much-needed reality check on how fast AI can grow.

One thing is clear: Nvidia is still the driving force behind AI’s growth, and this report will either confirm its dominance or expose vulnerabilities. Either way, investors should buckle up - it’s going to be a wild ride.