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Can Nvidia's earnings live up to the hype?

All eyes are on Nvidia (NVDA) Wednesday morning as Wall Street awaits the company's fourth-quarter earnings report, which is set to be released after the market close. One of the Magnificent Seven, the tech giant's stock has exploded over 200% the last year and aided in the market's overall rally.

Yahoo Finance's Josh Schafer and Dan Howley joins the Live show to break down how the market is moving as it prepares for Nvidia's earnings.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Nicholas Jacobino

Video transcript

- Nvidia is set to report after the bell stock futures they're lower this morning pressured by Nvidia's declines. Now, the chip maker lower once again in premarket. This comes after it suffered its worst day since October.

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Now, Nvidia has been a huge driver of the market's gains. Putting that in perspective, it's actually accounted for about 30% of the S&P 500 gains this year. So what should we expect tonight? And what does that mean for the broader market?

Here to break it all down, we've got team coverage. Dan Howley, Josh Schafer joining us at the desk. So guys, let's talk about just how critical this is going to be for the market. And Dan, whether or not you think Nvidia can and will actually live up to all the hype.

DAN HOWLEY: Yeah, I mean, the expectations are through the roof for this, right? They blew away expectations. In the prior two quarters, they had this huge forward-looking guidance that really, I think, had everybody stunned out of the gate. Originally, they had to revise up their guidance I think a few quarters back.

And so a lot of this is going to come down to, are they going to beat-- I mean, that's obviously the big thing. But then what is the guidance going to look like? What does it mean when they see, OK, we're continuing to see people want to get these chips. We're continuing to see people get the most expensive chips, the H100. And I think that's really going to be the big difference here for them. We're seeing more competition. But no one's really caught up quite yet. AMD is the closest. Intel is still pretty distant at this point.

JOSH SCHAFER: It's going to be interesting Dan, to just see how the stock moves. We talk about how much the stock has rallied just in 2024 alone, and it almost feels like there's only so much room to run here. And I think that's important to set as an expectation for investors because coming into this. Because Nvidia has had very impressive beats going back several quarters now.

But think about how the stock reacted last quarter. The stock didn't exactly skyrocket, right? Because sort of you're seeing that pricing in happening over the last couple of weeks as other tech companies mentioned that they want Nvidia chips, right? That was part of the run up here that we've seen.

So I think overall when you think broader market, it's not necessarily like you can maybe expect or you should expect Nvidia to be carrying the S&P higher tomorrow, carrying the NASDAQ higher. If anything, maybe the concern is actually something to the downside.

- Well, the first kind of look that we have at what the potential move could look like, Options AI has some data on this. And based on where they're seeing contracts kind of net out for post-earnings moves here, we're looking at an absolute value of either 9% higher or lower here. So that's the type of expectation that investors can have going into this. And it'll really be a question of what Nvidia says that also continues this kind of rising tide type of mentality as well here and where that permeates throughout the rest of the markets.

JOSH SCHAFER: You've seen that in a lot of these other stocks, right? Stocks that Dan covers around the tech sector, it has been the AI hype cycle, Nvidia kicked that off. And so what are they saying about it? But Dan, I'd be curious your thoughts on just even if they come out with maybe a slightly more tempered expectations than people expect, it feels like that doesn't change the AI story overall, right? It just might be maybe a one-day blip.

DAN HOWLEY: Yeah, I think it's interesting, right? Because like you said, there's only so high it can go after earnings. And I think that's one of the things to keep in mind is I think the AI discussion is still not completely understood by everybody. I kind of hammered this point a lot is that AI has been around for a very long time. It's in everything we use. It's in cars, it's in phones, it's in our smartwatches. And I think that's something to keep in mind, this is all based on generative AI still that people started to really go crazy for this.

I think when it comes to the overall story though, it's going to come down to how companies like Microsoft and Google in that ilk see the growth for their products. Microsoft had said that AI had given 6% revenue bump. 6% to their overall revenue for Azure. For Azure, not overall. And I think that's important to keep in mind.

So I think it's really going to heavily depend on the overall AI story where companies like that go as far as growth. For Nvidia, it's going to be well, everybody wants these chips, and everybody's going to continue to try to move forward with AI. There's going to be a need for them. So it's almost two different stories in this larger bubble of AI-- not necessarily that AI is a bubble but this overarching story of AI. But yeah, I think it's almost two different stories at this point.

- Yeah, at the same time, you mentioned Google out with its own Gemma this morning, more of the open source generative AI platform for developers there. We'll see what comes forward from some of those announcements. Also Dan, Josh, thanks so much for taking the time, teeing up all things Nvidia for later on today.