By Medha Singh, Noel Randewich
(Reuters) -Nvidia shares rallied almost 3% on Wednesday as traders bet the chip designer will deliver a strong outlook after the bell and boost the U.S. stock market as it reaps the benefits of early investments in artificial intelligence.
Nvidia's shares have more than tripled this year, with the chipmaker at the center of a Wall Street technology rally fueled by optimism about the potential of AI.
Its stock market value of $1.16 trillion makes Nvidia the world's most valuable chipmaker by far, more than double the value of TSMC, the world's second most valuable chip company. Nvidia's shares briefly hit a record high in the previous session.
"It's not often that the fate of the market rests in the hands of just one stock, but it very much feels like that is what's going on at the moment," said JJ Kinahan, chief executive officer of IG North America.
Retail investors made net purchases of $186 million in Nvidia shares over the past week, JPMorgan (NYSE:JPM) said in a report on Wednesday.
Nvidia dominates the market for high-end processors designed for AI computing, and its stellar outlook in the previous quarter sent its shares soaring over 20% and ignited a rally in the S&P 500 technology sector, which surged 8% in the five sessions after its results.
Options data showed the stock could swing nearly 11% by Friday, larger than the 8.6% average move in either direction seen a day after Nvidia's results over the last eight quarters.
Nvidia is part of the so-called Magnificent Seven group of megacap stocks including Apple (NASDAQ:AAPL) and Tesla (NASDAQ:TSLA) that have powered the S&P 500's nearly 16% recovery this year.
Bullish investors are betting a strong report and forecast from the company will revive a U.S. stocks rally that has paused in recent weeks. Anything short of a stellar forecast could also lead to a sell-off in Nvidia and other AI-related shares, investors also warned.
"The market is trading - and Nvidia is trading - as if the number is going to be very good. There's been fear that if their number wasn't good, it could take the market down," said Rick Meckler, a partner at Cherry Lane Investments.
After analysts increased their earnings estimates following Nvidia's previous report on May 24, the stock is trading at a forward earnings multiple of about 43, below a multiple of about 60 before its quarterly report in May, according to Refinitiv data.
Wall Street expects the chip designer to guide for fiscal third-quarter revenue above the consensus analyst estimate of $12.61 billion, which would be a jump of over 110%, according to Refinitiv. Investors will be focused on sales at Nvidia's data center unit, home to its prized H100 chip.