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Nvidia Results Will Be an Eye-Opener By Spencer Jakab

Stocks look set for a rebound, led by hard-hit tech companies , after a losing streak that began last week. Aside from some seeing a bargain, a major reason might be a big drop in Treasury yields recently that could stimulate the economy by making mortgages and other borrowing cheaper.

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A month after the DeepSeek shock , calling Nvidia's full-year results this afternoon "highly anticipated" is a gross understatement.

Reassuring guidance might have an electric effect. Even a hint of caution could unleash selling. The latter would be nothing new for Nvidia: It not only set the record last month for a one-day loss of market value but also holds 2nd, 4th, 5th, 6th, 8th, 9th and 10th place in its short history as the world's favorite stock.

The odds of its numbers meeting muster are good, though. This will be Nvidia's ninth quarterly report since the November 2022 unveiling of ChatGPT kicked off AI-mania . It has beaten analysts' consensus earnings-per-share expectations every single time, and not by a little. Results were 13.8% higher, on average, according to FactSet.

More interesting have been analysts' price targets. Adjusted for a stock split, the average at the rally's outset was $18.93 or about 35% above Nvidia's price. As the stock levitated, so did fair value estimates-staying about 21% higher, on average. Yet, as smart and optimistic as analysts were, not a single one out of the 68 surveyed saw the stock reaching $153 near the AI rally's outset.

The payoff from a correct call on Nvidia's report today could be chump change compared with some valuable psychological lessons about why analysts moved in lockstep. You don't even have to lose money to learn them. This quote from a major magazine cover story when another beloved stock stumbled is pure gold:

"Suppose you were stranded on a deserted island and could own just one single stock. What would it be? Think about it for a minute. Would it be a stock that's been battered this spring and is down 20% from its high? A stock that trades at more than 100 times earnings? A stock that's already climbed around 100,000% since going public ten years ago, that's already enjoyed one of the greatest rides in stock market history? The stock of a company that now faces unprecedented challenges in tough new markets...plus a posse of red-hot upstarts?"

The article's verdict? "No matter how you cut it, you've got to own Cisco."

Well, not really. It plunged almost 90% by the time the tech bust ended and still hasn't fully recovered.

The internet isn't AI and Cisco isn't Nvidia, but the psychological foible behind forecasts following the price and not a single analyst having a "sell" recommendation is the same. Behavioral finance tells us that a streak of past good results tends to precede earnings disappointments, and vice versa.

The answer isn't always to be contrarian, but there's money to be made, or losses to be avoided, through what investor Daniel Rasmussen of Verdad Advisers calls "radical humility." In his recently published book, "The Humble Investor," he says opportunities crop up at extremes when "others are certain of what the future holds," sort of like Nvidia before DeepSeek or when the world was ending five years ago because of Covid-19.

Human minds are just wired to get it wrong. Consulting ChatGPT after tonight's results might not be the worst idea.

Stocks I'm Watching

Super Micro Computer : The AI server specialist got a super boost in premarket trading by meeting a potential delisting deadline yesterday for filing its financial statements. It had to hire a new auditor in November after its last one resigned .

Axon Enterprise : One of 2024's top-performing stocks, beating out even many AI names, the taser maker had been in a slump so far this year. Not any more: Solid full-year results and an encouraging outlook have jolted the shares back to life in premarket trading.

Brookdale Senior Living : Watch this and other nursing-home operators closely as a draft GOP budget outline includes big cuts to Medicaid, which pays for many older people's stays after they have exhausted other financial resources. The stock hits its lowest since 2023 a couple of weeks ago but has since rebounded.

Centene : The same patterns and risks hold for the Medicaid-heavy health insurer. Hospital stocks are exposed as well . A majority of inpatient days are paid for by Medicaid or Medicare, according to an industry group.

Lucid : The electric vehicle maker said it would double production this year, but its stock's rise might have more to do with its CEO stepping down .

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Apple's $500 Billion U.S. Investment Is Mostly Already in the Books

One benefit to being Apple is being able to wow politicians with gaudy investment plans. In these less-exuberant times, though, that can make shareholders nervous. Apple's plan to spend half a trillion in the U.S. is a case in point. But, as Heard on the Street tech columnist Dan Gallagher explains , much of that has already been committed.

What I'm Reading President Trump floated the idea of a $5 million gold card that would allow wealthy foreigners to obtain U.S. citizenship. ( WSJ ) AI data centers can be huge investments and local community leaders often tout one springing up in an area. Yet they run with minimal staff so they do little to boost employment once they have been built. ( WSJ ) How will mass federal layoffs affect the U.S. economy? It depends. Economics reporter Justin Lahart explains the math to WSJ Money Briefing. ( WSJ podcast ) Elon Musk may be the second-most powerful person in the country, but his EV maker, Tesla, has lost about $400 billion in value since Trump's inauguration-more than any other automaker in the world is worth. ( Barron's ) Meet the world's 24 "superbillionaires," with a net worth above $50 billion. Most made their money in tech and their combined net worth totals $3.3 trillion, equivalent to the GDP of France. ( WSJ ) Beyond the Newsroom

Buy Side from WSJ: You're only taxed when you sell an investment, which is why it's helpful to be aware of the capital-gains tax rules .

About Me

My name is Spencer Jakab and I've been musing about money and markets for more than 30 years, including editing The Wall Street Journal's Heard on the Street column for a decade, writing two investing books and running a team of stock analysts at a global investment bank.

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This article is a text version of a Wall Street Journal newsletter published earlier today.

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February 26, 2025 06:48 ET (11:48 GMT)

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