A leading semiconductor company$NVIDIA (NVDA.US)$The financial report to be released after Wednesday (early Thursday morning Beijing time) will bring the latest test to the record rise in US stocks. Nvidia shares have risen 93% this year, making it second only$Microsoft (MSFT.US)$und$Apple (AAPL.US)$America's third-largest company.

Nvidia's influence on the entire market is also expanding. Since Nvidia's chips are the gold standard in the field of artificial intelligence, its performance is widely regarded as a barometer of the rapidly developing AI industry. The evolution of this industry has stimulated investors' enthusiasm and fueled a bull market in US stocks.

At the same time, Nvidia's weight in indices and exchange-traded funds has increased, and its share price fluctuations have had a huge impact on the entire market. The stock now accounts for more than 5% of the S&P 500 index, 6.5% of the Nasdaq 100 index, and 20% of the Vaneck semiconductor ETF.

Jay Woods, chief global strategist at Free Capital Markets, said, “If they do well... many stocks will follow suit. Few stocks have such a huge impact on the overall market. But Nvidia did it.”

When Nvidia's results were announced, the S&P 500 index, NASDAQ, and the Dow all hit record highs this month after a turbulent April. This was mainly boosted by a strong earnings season and people's new hopes that the US economy is about to achieve a so-called soft landing.

Nvidia's strong earnings may complement the acclaimed earnings reports of American giants such as Microsoft (MSFT.O) and Google (GOOGL.O), to help justify the rising stock market valuations in recent months. According to LSEG Datastream data, the price-earnings ratio of the S&P 500 index is 20.8 times, while the historical average is 15.7 times.

Nvidia's position in the AI field means “their reports may have a significant impact on current views on major investment topics,” said Chuck Carlson, CEO of Horizon Investment Services. AI “is touching every field, and Nvidia is at the heart of it all,” he said.

Nvidia's results for the first quarter of the fiscal year will be announced after the close of trading on Wednesday. Earnings may affect the stock prices of some AI-related companies — these companies have declined in recent weeks after experiencing significant increases.

Stocks such as Ultramicrocomputer (SMCI.O), AMD (AMD.O), Arm (ARM.O), and Palantir (PLTR.N) all declined after announcing results. The prices of these stocks are all down at least 20% from their 52-week high.

By contrast, Nvidia's recent stock price before the report was released was only about 2% lower than its all-time high. According to LSEG data, the company's quarterly revenue is expected to roughly triple to $24.6 billion.

“The threshold is very high,” said Bryant VanCronkhite, senior portfolio manager at Allspring Global Investments. “Investors are demanding very much right now, and I think Nvidia is no exception.”

Significant fluctuations

Nvidia's impressive results a year ago — when the company expected quarterly revenue more than 50% higher than Wall Street expectations — accelerated the market's excitement about everything AI-related. The company's stock rose 24% the next day.

This time, bets on the options market suggest that Nvidia's stock price may fluctuate 8.6% before Friday, Trade Alert data shows. This would translate into a $200 billion market capitalization fluctuation — more than 90% of the company's market capitalization in the S&P 500 index.

Of course, Nvidia's soaring share price meant the company had to meet a high standard to support its stock. For example, some investors might want the company to report particularly strong revenue and expect it to remain strong in the future.

“Although Nvidia's current situation seems very good, revenue is still very volatile and I think it's quite difficult to predict,” said Matt Benkendorf, chief investment officer at Vontobel Quality Growth.

However, despite soaring stock prices, Nvidia's valuation declined as analysts rapidly raised expectations of the company's expected profits. According to LSEG Datastream data, the stock's recent price-earnings ratio is about 34 times the expected earnings for the next 12 months, down from more than 80 times the middle of last year.

“Unlike some AI-driven companies... Nvidia's growth is mostly driven by fundamentals,” said Deepon Nag, portfolio manager for large-cap value strategies at ClearBridge Investments.

Editor/Jeffrey