Nvidia Earnings Looms as Pivotal Test for AI Stock Rally Amid Valuation Scrutiny
US equities turned positive on Wednesday, February 25, 2026, as investors positioned ahead of Nvidia Corp. (NVDA)'s highly anticipated fourth-quarter earnings report, due after the market close. With Dow futures up approximately 185 points, S&P 500 futures gaining a third of a percent, and Nasdaq 100 futures advancing half a percent, the pre-market tone reflected cautious optimism amid a broader reassessment of artificial intelligence-related valuations and capital expenditures.
Market Setup: Eyes on Nvidia as AI Trade Faces Gut Check
The session unfolded against a backdrop of rolling corporate earnings, with attention squarely on Nvidia alongside results from Salesforce Inc. (CRM) and Snowflake Inc. (SNOW). Nvidia, often dubbed the "Super Bowl" of earnings seasons due to its central role in igniting the multi-year AI bull market, carries outsized importance. Betting markets like Poly Market reflect this sentiment, with a majority of participants—94%—anticipating a results beat, underscoring expectations for continued dominance in AI infrastructure.
However, beneath the surface optimism lies growing scrutiny. Investors are grappling with dual narratives: the explosive growth fueled by hyperscaler spending on AI data centers versus fears of disruption in software layers and moderating returns on massive capital outlays. This tension was evident in recent performances, such as Workday Inc.'s disappointing forecast released the prior day, which flagged potential AI encroachment on enterprise software models.
ASML Signals Sustained AI Demand Tailwinds
Bolstering the bullish case, ASML Holding NV, the leading supplier of lithography equipment critical for advanced chip manufacturing, released its annual report on February 25, 2026. CEO Peter Wennink explicitly stated that artificial intelligence has emerged as the main driver for the company's products, spurring capacity buildups across its customer base—including Nvidia, TSMC, and Intel. Wennink emphasized that this trend will remain "powerful" throughout 2026 and beyond, as demand for high-performance computing accelerators intensifies.
ASML's outlook aligns with the broader AI infrastructure cycle. Hyperscalers like Amazon Web Services, Microsoft Azure, and Google Cloud continue aggressive expansions, with capital expenditure guidance from recent quarters pointing to tens of billions allocated to AI servers and GPUs. Nvidia, commanding over 80% market share in AI GPUs, stands to benefit disproportionately, provided gross margins hold above the mid-70% range that has become a key watchpoint.
Valuation Pressures and Dispersion in AI Ecosystem
Despite these tailwinds, the AI trade has entered a more mature phase, characterized by increased dispersion among beneficiaries. Roughly a year ago, any technology exposure guaranteed outperformance; today, differentiation is paramount. Investors must discern pure-play enablers like Nvidia and ASML from those vulnerable to disruption, such as legacy enterprise software providers.
Workday's weak guidance exemplifies the latter, with shares under pressure after signaling slower growth amid AI competition. Conversely, AI startup Anthropic's announcement of new enterprise features for its Claude platform—integrating with Google Drive (GOOG), DocuSign (DOCU), and LegalZoom (LZ)—rekindled enthusiasm for applied AI adoption. This development highlights a shift toward practical, revenue-generating implementations, potentially broadening the rally beyond hardware.
Nvidia's report will provide critical data points: revenue expectations hover around $28-30 billion for the quarter, with data center sales—predominantly AI-driven—projected to exceed $25 billion. Analysts will parse guidance for fiscal 2027, watching for any signs of peaking demand or margin compression from supply chain costs. Consensus forecasts a 10-15% sequential growth deceleration, but beats on Blackwell platform ramps could catalyze a re-rating.
Macro Backdrop Supports Equities Despite Choppiness
The earnings focus occurs amid a resilient macroeconomic environment. Commentators noted a "strong macro backdrop" with broadening earnings growth, positive for risk assets. President Trump's State of the Union address on Tuesday, February 24, 2026, reinforced pro-growth policies, though tariff rhetoric and Supreme Court tensions introduced volatility. Legal pushback on tariffs added uncertainty, but markets largely shrugged it off, prioritizing corporate fundamentals.
Sector rotation is underway, with home improvement retailer Lowe's Cos. (LOW) beating estimates yet declining on soft guidance, and Circle Internet Financial (CRCL) surging over 20% on robust Q4 revenue. These moves suggest dispersion extending beyond AI, but technology remains the performance leader, with the Nasdaq Composite up over 25% year-to-date entering the week.
Key Metrics to Watch in Nvidia's Report
Data Center Revenue: Expected to drive 90%+ of growth; any shortfall signals hyperscaler capex fatigue.
Gross Margins: Consensus at 76%; dips below 75% could trigger selloffs on pricing power concerns.
Guidance: FY2027 outlook for $120B+ revenue; upside surprises on H100/H200 and Blackwell ramps pivotal.
Capex Commentary: Insights into customer inventories and next-gen AI model training needs.
Post-earnings implied volatility remains elevated, pricing in 8-10% moves, reflecting the high stakes. A beat-and-raise scenario could propel NVDA toward $150/share, extending the AI theme, while in-line results might pressure the Philadelphia Semiconductor Index (SOX).
Broader AI Investment Implications
The Nvidia event encapsulates the AI cycle's evolution. Early-stage hype has given way to profitability scrutiny, with investors demanding evidence of return on investment for the $1 trillion+ in projected data center buildouts by 2030. Pick-and-shovel plays like ASML and Nvidia retain premium multiples—NVDA trades at 45x forward earnings—but software disruptors face headwinds until monetization clarifies.
Opportunities abound for discerning allocators. Upstream suppliers (e.g., TSMC, AMD) offer leverage to AI without Nvidia's frothy valuation. Downstream, enterprise AI integrators like Anthropic partners could emerge as growth vectors. The macro resilience—low unemployment, cooling inflation—provides a supportive floor, even as policy risks linger.
Yahoo Finance's live coverage captured the market's pulse: "Earnings growth still looks good, but worries under the surface about the AI picture." This duality defines 2026's narrative. While choppiness persists, the structural AI shift—powered by compute-hungry models like Claude and successors—favors quality over speculation.
Outlook: Bullish Base Case with Measured Risks
BullishDaily maintains a constructive view on AI equities, anchored by ASML's demand confirmation and Nvidia's entrenched moat. Expect post-earnings volatility, but sustained hyperscaler spending should underpin mid-teens sector growth. Investors should prioritize balance sheet strength and AI exposure purity, navigating dispersion with rigor.
As markets digest Thursday's print, the true test will be execution against an increasingly sophisticated competitive landscape. For now, the AI trade endures, with Nvidia poised to reaffirm its leadership.
