April 19, 2024

Santa Clara-based chipmaker Nvidia has emerged as Wall Street’s new king of trading activity, dethroning electric vehicle giant Tesla. 

With AI optimism fueling its meteoric rise, Nvidia’s average daily trading volume over the past month reached $30 billion, while Tesla traded at $22 billion per day over the same period.

This intense interest spotlights Nvidia’s increasingly pivotal role in tech but also raises questions about stability should growth fail to satisfy heightened expectations.  

Nvidia Valuation Soars on Boundless AI Ambitions 

Sustained by hopes around its AI chips, Nvidia’s share price surged 40% in 2024. With a market cap now topping $1.7 trillion, Nvidia ranks as the third most valuable U.S. firm behind Apple and Microsoft. 

However, these towering valuations are surrounded by assumptions from impulse traders who want to make quick gains from the stock increase.

This can be seen when Nvidia stock dropped 5% on Tuesday amid pre-earnings jitters. The impending risk of a growth setback shows why Nvidia’s next quarterly update is so crucial.

Alongside Nvidia, other AI-related equities like Super Micro Computer have attracted frenzied trading, especially among retail investors and algorithms chasing momentum over fundamentals. 

On Tuesday alone, activity from Nvidia and Super Micro constituted 46% of total dollar volume for the 10 most-traded U.S. stocks. As such, Dennis Dick, a trader at Triple D Trading, drew dot-com comparisons, questioning whether recent price spikes reflect AI firms’ intrinsic worth.   

Notably, Nvidia controls roughly 80% of high-performance AI chips, providing it with unmatched influence in determining the trajectory of artificial intelligence adoption.

With segments like data centers, autonomous vehicles, and cloud services increasingly integrating AI, Nvidia quarterly updates offer vital guidance on growth expectations. 

Any weakening of demand would reverberate across tech, especially with speculative bets amplifying AI stock upside/downside.  

Earnings Pose Moment of Truth for AI Euphoria  

Despite these headwinds, demand for Nvidia’s graphics chips continues to outstrip supply as data centers undergo severe AI upgrades. VanEck portfolio manager Angus Shillington said, “There’s an understanding that China is going to go its way” regarding domestically-produced chips. 

His firm’s semiconductor ETF has over $150 million in Nvidia holdings. China represents 20% of Nvidia’s total revenue. Given Nvidia’s AI primacy and the exuberance surrounding its valuation, Wednesday’s earnings release marks a moment of truth for sentiment. 

To avoid a selloff, Nvidia would have to deliver exceptionally strong results and future guidance, reaffirming the narrative of boundless AI expansion. 

With Tesla shares sliding 23% amid demand issues for its electric cars, Nvidia now singularly guides assumptions around tech’s next transformational wave.

Any cracks in its armor could undermine the premises underlying 2024’s speculative run-up. All eyes rest on Nvidia, with AI seemingly at an inflection point.

If adoption truly approaches exponential curves, Nvidia’s upside remains vast. But with expectations so intertwined with AI promise, disappointment could puncture optimistic projections. 

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