As investors look for reassurance that the AI-driven investing trend, which has propelled stocks for two years, is still intact following last month’s panic-selling sparked by the Chinese startup DeepSeek, Nvidia’s profit report next week might determine the direction of the U.S. stock market.
With a 6.3% weight on the S&P 500, Nvidia is the second most valuable business in the world and is seen as a barometer of the growing AI sector, according to LSEG. Over the past two years, its shares have increased by more than 550%.
However, Nvidia recently made a mistake when the Chinese firm DeepSeek revealed a less expensive AI model that was perceived as a challenge to the supremacy of American competitors. This caused Nvidia to drop almost 17% on January 27, or $593 billion, a record one-day market value loss.
Although the business claims that DeepSeek’s advancements demonstrate the need for more of its chips, shares have nearly entirely recovered from the decline. However, cautious investors worry that results might reignite some market instability.
“There is some concern about wanting to call the top on Nvidia, so it’s a difficult setting for next week’s conference call. Therefore, under any circumstances, I wouldn’t be shocked to see rotation and a rather dramatic market reaction,” Allspring’s head of growth equities team, Mike Smith, stated.
He suggested that investors may switch from AI trading to industries like healthcare, software, and finance.
According to data from options analytics site ORATS, Nvidia options predict a 7.7% swing for the shares in either direction after the results, consistent with the stock’s average move of 7.6% on the day after results over the last 12 quarters.
The options-implied stock move is equivalent to a market value swing of around $260 billion, which is nearly the size of Wells Fargo, given that the AI chipmaker’s market capitalization is over $3.4 trillion.
According to LSEG statistics, Nvidia is anticipated to report a fourth-quarter profit of $20.89 billion on February 26. This profit is primarily due to an approximately 72% increase in revenues compared to last year’s period.
With strong fourth-quarter results approaching, all eyes will be on Nvidia’s supply and demand forecasts to support its high valuation and the industry’s prospects.
According to LSEG Datastream, Nvidia’s price has dropped from over 40 times ahead of 12-month profit projections in early November to about 32 times. At 22 times projected earnings, the S&P 500 is trading.
According to Matt Orton, chief market strategist at Raymond James Investment Management, the equities market has done well despite uncertainties surrounding U.S. tariff and fiscal policy, a decline in retail sales, and a hotter-than-expected consumer price index. “Nvidia is the last piece of the market puzzle right now that might help reset investor sentiment,” he added.
“It can be the catalyst to help the market break out once again,” he stated. Since the DeepSeek selloff, markets have shifted since Nvidia no longer has as much influence on all equities as it did at the start of the year. According to Schwab’s estimations, the connection between the chipmaker and the S&P 500 dropped from 71% last year to 30% in 2025.
Even said, equities are not invincible if the bellwether Nvidia fails. It’s critical to distinguish between Nvidia’s statistical impact and psychological implications on the market. In my opinion, it’s more of a psychological shift,” said Joe Mazzola, chief trading and derivatives strategist at Schwab.
The publication of U.S. inflation statistics for January next week will also be closely watched by investors, particularly after data last month revealed that, in December, inflation rose by the highest in eight months due to strong consumer spending on goods and services. The Fed would postpone lowering interest rates if inflation figures were hotter than anticipated.
