Nvidia's Earnings Are Almost Here. Investors Are Already Worried About the AI Rally.

Core Insights - Nvidia is set to report quarterly results next Wednesday, which is anticipated to be a pivotal moment for the bull market, with heightened anxiety about AI on Wall Street leading up to the report [1][2] - The recent sale of Nvidia shares by SoftBank, intended to fund other AI investments, has contributed to market jitters, despite clarifications from SoftBank executives [2][3] - Concerns are growing among investors about a potential AI bubble, driven by excessive investments and circular business deals, with notable figures like Michael Burry shorting Nvidia and Palantir stocks [3][5] Company Performance - Nvidia has experienced significant sales and earnings growth over the past three years, largely due to the massive spending by major tech companies on AI infrastructure [4] - Analysts from BCA Research have suggested shorting stocks of hyperscalers, indicating that the rapid pace of AI investments may negatively impact their returns on equity and stock valuations [6] Market Dynamics - JPMorgan estimates that tech companies would need approximately $650 billion in annual revenue indefinitely to achieve a 10% return on their AI investments through 2030, equating to nearly six basis points of global GDP [7] - OpenAI's recent revenue run rate of $20 billion and its agreements to pay Nvidia, AMD, and Broadcom between $1.2 trillion and $1.5 trillion for data center capacity over the next five years highlight the growing importance of AI in the market [8] Investor Sentiment - Despite skepticism regarding the sustainability of AI investments, many investors remain bullish, arguing that current tech valuations are below their Dotcom peaks and that major companies investing in AI are among the most profitable [9] - The potential for a Federal Reserve rate-cutting cycle could stimulate data center construction and increase liquidity in financial markets, positively impacting stock prices [10] Industry Outlook - AMD has projected that the AI chip market could reach $1 trillion by 2030, aiming to capture a double-digit market share, which has positively influenced its stock price [11]