Nvidia's Earnings Report This Week: Can It Save the Market Again? Wall Street Watches for AI Bubble Warning Signs Amid 'Buy the Rumor, Sell the News' Fears

AI chipmakers are working hard to convince investors that the AI boom is still accelerating at high speed, but whether Wall Street will continue to buy in ultimately depends on what Nvidia CEO Jensen Huang has to say. Nvidia will release its latest financial results early Thursday morning Taiwan time (July 27), and Huang’s commentary on current business and future prospects will not only affect markets heavily reliant on tech stock performance but also impact the increasingly AI-dependent expansion of the U.S. economy. Since the launch of ChatGPT in 2022 sparked a race among OpenAI, Anthropic, and Silicon Valley tech giants for dominance in AI, Nvidia—valued at approximately $5 trillion—has played a pivotal role by providing the core chips and computing infrastructure needed to power generative AI. Now, as Nvidia begins funding large-scale data center projects and uses various financing arrangements to stimulate chip demand, the chip giant’s influence across the entire AI industry may be greater than ever before. However, some warning signs are beginning to emerge. Key challenges include rising political backlash against AI; bond sell-offs pushing corporate and government borrowing costs to multi-year highs; and hyperscale cloud providers—once seen as cash-generating machines—now increasingly relying on debt to fund massive capital expenditures. Meanwhile, OpenAI recently informed investors that its second-quarter revenue grew just 18% year-on-year while losses widened further, prompting the market to reconsider whether AI application companies can convert massive infrastructure investments into revenue and profits quickly enough. As these potential weaknesses surface, Nvidia itself is becoming more actively involved in the AI supply chain. Earlier this month, Nvidia partnered with six major Wall Street financial institutions to launch a $500 billion AI financing initiative, pledging to provide financing support for clients unable to directly afford Nvidia’s chip costs. Last week, Nvidia invested in data center power infrastructure provider Cloverleaf Infrastructure and struck a $6 billion deal with startup Poolside to jointly develop powerful open-weight AI models. These moves highlight how Nvidia has evolved beyond being just an AI chip supplier, now stepping into areas such as funding, power supply, and model development within the AI infrastructure ecosystem. Having beaten expectations for 14 consecutive quarters, market expectations are now even higher. After recent volatility in other chip stocks and the so-called 'Magnificent Seven' tech giants, Wall Street still hopes Nvidia can once again deliver results exceeding market forecasts. Brian Mulberry, chief market strategist at Zacks Investment Management, described the level of attention on Nvidia’s earnings as “increasingly resembling a World Cup final,” underscoring its significance beyond typical major sporting events. Since the acceleration of the AI boom, Nvidia has consistently outperformed analysts’ profit expectations for 14 straight quarters. According to FactSet data, Nvidia’s net profit surged 210% year-on-year last quarter, far exceeding the initial Wall Street estimate of 126%, indicating extremely high market expectations for the AI chip leader’s profitability. As market expectations have been repeatedly raised throughout the year, the bar for Nvidia to significantly exceed forecasts in Q2 has risen sharply. The market currently expects Nvidia’s Q2 revenue to reach a record $92 billion, up from an initial forecast of $78 billion at the start of the year. In other words, Nvidia must not only sustain rapid growth but surpass already elevated market expectations. Concerns over AI capital spending are growing, raising questions about who will foot the bill. July’s tech earnings season has already revealed another side of AI capital expenditure. After Alphabet and Tesla reported their earnings, fears of runaway tech sector spending spread rapidly, causing tech market valuations to briefly evaporate by $890 billion—a key backdrop for hedge fund Situational Awareness’s deleveraging move. Microsoft, however, delivered strong results, achieving the largest single-day market cap increase in corporate history, proving that large tech firms can still demonstrate profitability to investors. SpaceX saw its stock surge after a record IPO, only to lose $1 trillion in market value afterward, highlighting how sensitive the market remains to the valuation of high-growth tech assets. At the same time, rising memory prices and increasing borrowing costs are making investors worry whether tech companies can continue investing heavily in AI infrastructure, including purchasing Nvidia’s chips. Shaia Hosseinzadeh, founder of OnyxPoint Global Management, recently took advantage of market stress caused by Silicon Valley firms’ heavy bond issuance to buy AI infrastructure-related stocks at lower prices. He believes overall macroeconomic data remains strong, but there is ultimately a tipping point where “everything goes wrong.” Nvidia’s influence extends beyond chip stocks—entire AI supply chains await its guidance. Despite growing concerns about the health of AI chip demand, capital continues to flow into AI-related trades, directly benefiting chip manufacturers. Therefore, Nvidia’s outlook on future semiconductor demand affects far more than just its own stock price. From memory and storage players like Micron and SanDisk, to data center developers, power suppliers, engineering contractors, and other AI infrastructure providers—all could be influenced by Nvidia’s forward-looking statements. David Lefkowitz, head of U.S. equities at UBS Global Wealth Management, joked internally that “we’re all Nvidia analysts now.” Paradoxically, could better earnings lead to a ‘sell the news’ reaction? Notably, another pattern from Nvidia’s past earnings reports adds complexity for investors. Although the company has repeatedly delivered results far exceeding expectations, investors often sell the stock afterward. In each of the past four quarterly earnings releases, Nvidia’s share price declined the following trading day, leading some investors to bet on a repeat this time. Current options market pricing suggests a potential 5.3% price swing—up or down—the day after the earnings announcement, higher than the average 4.8% volatility seen over the past 12 months post-earnings. Among the most actively traded Nvidia options recently are put options betting on the stock falling from last Friday’s closing price of $214.75 to $205 or $210. Puts give holders the right to sell shares at a specific price and are typically seen as bearish bets. Still, many Wall Street analysts remain optimistic. Frank Lee, Head of Global Technology Hardware and Semiconductor Research at HSBC Global Investment Research, recently raised Nvidia’s price target from $325 to $360, citing strategic partnerships with suppliers and Nvidia’s significant position in open-source AI. For the market, the key question isn’t just whether Nvidia can beat expectations again—but whether, amid rising pressures from AI capital spending, financing costs, and corporate profitability, Nvidia can still prove that the global wave of AI infrastructure investment has sufficient demand and profit potential to sustain momentum.