'The World Will End If Nvidia Misses Earnings'

 by QTR's Fringe Finance

I’d like to think I’m being hyperbolic with this title…but, you know…I might not be.

Here’s the rub this fine Thursday afternoon. Both Google and Amazon just missed earnings expectations the last two days, both stocks are getting their teeth kicked in, and the Nasdaq has fallen -1.4% during regular trading before shedding another -1.4% after hours today. The 3:55PM “dip buyers” were down another -1.4% by 4:30PM.

It got me thinking about something truly terrifying.

I’ve joked for years that the powers that be would sooner allow Nvidia to commit massive accounting fraud in broad daylight than permit the company to admit it wasn’t going to make its earnings numbers. After all, hanging in the balance at this point is seemingly the entire multitrillion-dollar global financial ecosystem.

The joke, of course, is that Nvidia has become so systemically important to the market’s psychology that a disappointing quarter would practically constitute a national emergency. I sometimes wonder whether the Federal Reserve would have to establish a special lending facility just to bail out Nvidia. Again…I’m only half joking.

But seriously. Close your eyes for a second. Meditate. Breathe deeply.

Now imagine Nvidia misses earnings.

It would be f*cking fire and brimstone. Locusts descending from the heavens. Rivers turning to blood. Famine, plague, pestilence, “dogs and cats, living together,” to quote Peter Venkman in Ghostbusters.

I was just thinking…if Google and Amazon missing expectations can rattle the market this badly, what the hell happens when the company sitting at the nerve center of the entire bull market suddenly and unexpectedly disappoints?

The one sell is Jay Goldberg of Seaport Research Partners, not any major firm. Even he still has a $180 price target.

Remember, we’re talking about a market with atrocious breadth, an increasingly concentrated handful of mega-cap stocks doing the heavy lifting, and an investment thesis that has effectively been reduced to two letters: AI.

And Nvidia isn’t merely participating in that thesis. Nvidia IS the thesis.

The entire AI infrastructure spending boom, the hyperscaler capital expenditure bonanza, the data center construction frenzy, and a substantial portion of the market’s expectations for future earnings growth all run, in one way or another, through Nvidia.

The company’s extraordinary growth has become the ultimate justification for extraordinary spending everywhere else. As long as Nvidia keeps selling chips at a breathtaking pace, investors can convince themselves that the hundreds of billions being shoveled into AI infrastructure are eventually going to generate returns commensurate with the investment.

But what happens when the company selling the picks and shovels during the greatest technological gold rush in modern history tells investors, even implicitly, that perhaps the miners aren’t buying quite as many shovels as everybody expected? They almost don’t even have to miss…they just have to not beat by a lot…

Then suddenly, the questions I’ve been asking about circular financing, questionable accounting, unsustainable capital expenditures, and the actual economics of artificial intelligence would become a whole lot more difficult to ignore: It’s Official: The AI Emperor Has No Clothes

A miss wouldn’t just be an earnings disappointment. It would raise questions about the assumptions holding up the entire market. It would be seismic…

And almost nobody even talks about this possibility. Nvidia has beaten consensus earnings expectations for five consecutive quarters. Its ability to deliver seemingly miraculous numbers has become so ingrained in investor psychology that the prospect of an actual miss barely exists in the discourse.

Nvidia has beaten Wall Street’s consensus earnings expectations in 15 consecutive quarters, dating back to early 2023. Yet its shares have declined in the trading session following seven of its last 12 earnings reports, underscoring just how difficult it has become for the company to satisfy investors’ increasingly lofty expectations.

The conversation surrounding Nvidia earnings isn’t even really about whether the company will beat expectations anymore. It’s about how much it will beat by, how aggressively management will raise guidance, and whether the numbers will be sufficiently spectacular to justify another few hundred billion dollars in market capitalization.

The possibility that the company could actually disappoint seems to have been removed from the menu of acceptable outcomes.

Which is precisely what makes the thought experiment so interesting. Markets are supposed to discount probabilities. But when an outcome becomes so unthinkable that virtually nobody is positioned for it, even a relatively modest disappointment can produce an extraordinary reaction.

And in this case, the potential implications would extend far beyond Nvidia shareholders. We’re talking about semiconductor companies, utilities, data center operators, power infrastructure providers, private credit, hyperscalers, and practically every corner of the market that has been swept up in the AI spending frenzy.

One disappointing report could force investors to reconsider the valuations of an entire ecosystem of companies whose business models have increasingly come to depend on the assumption that AI capital expenditures will grow exponentially forever.

In my opinion, an outright Nvidia earnings miss, particularly one accompanied by disappointing guidance, could be the shock to end all shocks. The signal to end all signals that this bull market, built on increasingly narrow foundations and increasingly heroic expectations, was finally coming apart.

I have a difficult time imagining a more psychologically devastating earnings report for a market that has effectively put all of its eggs in one very expensive, very crowded, AI-powered basket. Of course, note that I’ve been saying since 2023 that Nvidia could eventually be the black swan…Has The Market’s Black Swan Just Arrived?

And maybe it never happens. Maybe Nvidia continues delivering miraculous numbers until the end of time. Maybe the AI spending boom really is an economic perpetual-motion machine and all of the skeptics, myself included, are simply too stupid to understand it.

But I can’t help wondering what the market would look like the morning after the unthinkable finally happened.

https://www.zerohedge.com/markets/world-will-end-if-nvidia-misses-earnings