"AI overhype" or the real deal? Nvidia earnings will provide answers
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Nvidia's earnings report on Wednesday afternoon will deliver insights into how the company is navigating trade tensions with China and whether the AI economy is showing signs of cracking.
Why it matters: The bellwether AI stock has mushroomed into an outsized force in the S&P 500, now accounting for about 8% of the index.
- That's the highest weight of any single stock since data collection started in 1981, according to Apollo Global Management chief economist Torsten Sløk.
The big picture: Nvidia earnings reports have become arguably the single most important quarterly release for the broader market.
- "The worries are that if Nvidia doesn't deliver, then all the worries about AI overhype and extreme valuations wouldn't look so misplaced," writes Hardika Singh, analyst at Fundstrat. "And if not for Nvidia, can the AI party go on?"
Zoom in: The market will be focused a few key issues, including:
How Nvidia addresses ongoing U.S.-China trade tensions.
- The company agreed to give the U.S. 15% of the China sales of its H20 chips in exchange for export allowances, but Beijing has reportedly urged companies not to buy them, concerned about their security and miffed about their downgraded specs.
- Per The information, Nvidia has now halted production of the H20 while CEO Jensen Huang works to reassure Beijing on the security issue.
- "If that report is correct, then we're going to want to hear a lot more detail from Nvidia as they're reportedly about to introduce a newer chip, the B30A, that is intended to replace the H2O," writes Dave Sekera, chief U.S. market strategist for Morningstar.
What the company says about future demand from hyperscalers for AI infrastructure.
- "This tech bull market in our view is being fueled by the biggest transformational tech spending cycle in the last 40 years," Wedbush Securities analyst Dan Ives writes.
- "The June quarter message from Big Tech: investment in AI will exceed expectations for the next year, a sign we are still early in the buildout," writes analyst Gene Munster of Deepwater Asset Management. "A closer look at the comments suggests that when Amazon, Microsoft, and Alphabet report September and December results, they should all guide for a measurable increase in capex in CY26 compared to current expectations."
Whether an earnings beat is enough to inspire investors to keep buying the stock, which is up more than 30% this year.
- The market is accustomed to Nvidia topping expectations, so it's more a question of how much it would actually take to wow investors.
- "The bear-case argues that the exuberance toward NVDA is well-priced into the stock and, at current levels, there is a slim margin of error for the company in terms of supply-side execution," according to Stifel analyst Ruben Roy.
The bottom line: The report will influence the ongoing debate on whether the market is experiencing an AI bubble.
- "A stellar earnings report card from Nvidia could help reverse other tech behemoths' fortunes," Singh says.
