Morning in New York: The AI rally successfully weathered the test posed by Nvidia's earnings report

A daily review and forecast of events in the U.S. stock market by Mikhail Denislamov, Deputy Director of Capital Markets Research at Freedom Broker.

Positive corporate news is fostering an optimistic mood ahead of the start of the main trading session. Against this backdrop, concerns that had been weighing on the technology sector in recent weeks have eased.

NVIDIA’s (NVDA) results for the reporting quarter exceeded average expectations, as did its own revenue forecasts for the next comparable period. The company’s management forecasts accelerated growth over the long term. All of this is reducing the investment community’s assessment of the likelihood that the cycle of increasing capital expenditures in AI will end soon. This is particularly important given concerns that, after several years of sharp increases in spending by hyperscalers, investment in computing infrastructure is nearing its peak.

Quarterly results from Salesforce (CRM), CrowdStrike (CRWD), and Okta (OKTA) have weakened the “bearish” argument that the spread of generative AI will significantly reduce demand for traditional software and force its developers to abandon it in favor of more modern solutions. The accelerated growth of Salesforce’s Agentforce AI platform, CrowdStrike’s record increase in annual recurring revenue (ARR), and Okta’s expansion into AI agent security point to emerging monetization opportunities in the enterprise software and cybersecurity segments.

Thus, the positive impact of investments in AI solutions is beginning to be felt not only among computing infrastructure providers. At the same time, the financial results do not yet address the longer-term issue of the return on large-scale capital expenditures for AI development and the risks of “cyclical” financing within the industry. Rising memory chip prices are putting additional pressure on equipment manufacturers’ profit margins.

This Thursday’s macroeconomic calendar does not include any releases of significant importance to the market, so corporate factors will take center stage at the start of the session. The most significant release will be the initial jobless claims data (consensus: 208,000, following 206,000 the previous week). A noticeable weakening of the labor market could reduce expectations of tighter monetary policy and support “growth” stocks with long-term potential. Stronger-than-expected data could once again push Treasury yields higher. The Kansas City Fed’s Business Activity Index for August will add to the picture of industrial activity, but is unlikely to be a standalone driver of stock market movements.

The investment community is awaiting Fed Chair Kevin Warsh’s remarks at the annual Jackson Hole symposium of bankers, scheduled for August 28. The PCE data released yesterday confirmed that inflation remains elevated, so there is little reason to expect the Fed chair to significantly soften his rhetoric. Strong “hawkish” signals from Fed officials and the associated rise in bond yields remain the main macroeconomic risk to the continuation of the “bullish” trend in tech stocks.

Brent crude fell below $87 per barrel, while WTI retreated to $81 amid diplomatic efforts regarding Iran and the Strait of Hormuz. However, oil shipments via this route remain significantly lower than they were before the outbreak of hostilities in the region, creating additional uncertainty.

Many companies in the retail and technology sectors will release their quarterly earnings reports this Thursday. Before the market opens, Best Buy (BBY), Dollar Tree (DLTR), Dollar General (DG), Burlington Stores (BURL), and Canadian banking giants Royal Bank of Canada (RY) and Toronto-Dominion Bank (TD) will report their results. The most significant release after the market closes will be Marvell Technology (MRVL), whose results will serve as an important indicator for the AI sector alongside Nvidia’s figures. Reports will also be released by Workday (WDAY), Autodesk (ADSK), Ulta Beauty (ULTA), and Affirm (AFRM).

Futures on the S&P 500 and Nasdaq 100 indices are showing an upward trend, with the technology sector outperforming the broader market. We assess the risk balance for the upcoming session as positive, with moderate volatility. The earnings reports from software companies and manufacturers of components for AI solutions mentioned above are creating a backdrop favorable for growth. Key risks include rising Treasury yields, hawkish signals from the Fed, and market participants’ doubts about the long-term return on large-scale investments in AI.

— Nvidia (NVDA) shares are up about 7% as its revenue for the second quarter of fiscal year (FY) 2027 rose 106% year-over-year to $96.2 billion, while adjusted EPS came in at $2.22, beating the consensus estimate of $2.09. An additional driver of the stock’s rise was management’s guidance for the current quarter, which projects revenue—excluding sales to data centers in China—of $108 billion (+/-2%) versus a consensus estimate of $104.2 billion. The expansion of the partnership with Amazon Web Services, with plans to deploy 2 million Nvidia GPUs, was viewed positively. The main risks remain pressure on margins from rising memory component costs and the significant impact of investment revaluations on GAAP earnings. Nvidia expects its gross margin to decline to approximately 74% in the next quarter. The company also announced the acquisition of Hugging Face for $12.9 billion.

— Salesforce (CRM) shares are rising by about 12% following the release of its earnings report. The company’s revenue for the second quarter of fiscal year 2027 increased 11% year-over-year to $11.35 billion, while cRPO reached $33.5 billion, compared to the market consensus estimate of $33.22 billion. The company raised its full-year revenue forecast to $46.1–46.4 billion. Agentforce ARR increased by more than 240% year-over-year, reaching $1.5 billion. A major announcement was the launch of Claudeforce in partnership with Anthropic. The new technology integrates Claude’s cutting-edge AI models with Salesforce’s enterprise ecosystems and applications.

— Okta (OKTA) shares rose by approximately 20% following the release of its quarterly results. The company’s revenue for the reporting period reached $805 million, up 11% year-over-year, compared to guidance of $790–794 million. The full-year revenue forecast has been revised upward to $3.216–3.226 billion, implying a 10–11% increase. For a company that has faced a multi-year slowdown in growth, this acceleration in key metrics signals increased investment appeal. Another positive factor is the announced acquisition of Permiso Security for approximately $200 million, which strengthens Okta’s position in the AI agent security segment.

— CrowdStrike (CRWD) shares are up about 11% on the back of record operating results. The company’s revenue increased by 26% year-over-year, and its full-year guidance has been raised to $6 billion at the midpoint from the previous $5.94 billion. Net ARR growth for the reporting period was 51%, resulting in $333 million. The guidance for further growth in this metric has been revised upward by 630 basis points to 34%. This trend supports the view that a new cycle of demand for cybersecurity solutions is emerging amid rising spending on AI infrastructure protection.

Trading on August 26 on U.S. stock markets ended near the break-even point. The S&P 500 lost a symbolic 0.02%, the Nasdaq 100 edged down by a marginal 0.08%, the Dow Jones fell by 0.21%, and the Russell 2000 declined by 0.14%. Investors adopted a wait-and-see stance ahead of Nvidia’s (NVDA) earnings report. Against this backdrop, shares of the largest technology companies showed mixed performance.

Due to a capital shift toward cyclical sectors, apparel retailers— buoyed by Abercrombie & Fitch’s (ANF) earnings report —as well as banks and transportation companies outperformed the market. The industrial sector (XLI: +1.1%) emerged as the top performer, supported by engineering and construction companies, electrical equipment manufacturers, and railroad operators. The healthcare sector (XLV: -1%) lagged behind amid profit-taking following the rally in previous sessions.

The macroeconomic data released showed mixed results. The core PCE deflator for July rose 3.3% year-over-year, in line with the consensus estimate. Personal income and spending exceeded forecasts, indicating that consumer activity remains strong. The second estimate of GDP for the second quarter was, as expected, confirmed at 1.5%.

The auction for the placement of $70 billion in five-year Treasury notes was conducted with a yield premium of 0.2 basis points. Demand from foreign investors was lower than the average levels seen in recent months. This contrasted with the strong results of the two-year note auction the day before. The dollar index rose 0.3%, while gold fell 0.9% and silver fell 1%.

Geopolitical uncertainty intensified following Donald Trump’s statements that there was no specific timeline for resuming negotiations with Iran. Combined with news of a possible escalation of the conflict in Ukraine, this offset the impact of earlier signals regarding the situation around the Strait of Hormuz.

Market participants’ attention has once again turned to the impact of AI on software developers’ business models following Intuit’s weak forecast, as well as to the debate over the return on investment in AI amid rising capital expenditure forecasts, “cyclical” financing schemes, and widening CDS spreads on the debt of major technology companies.

This article was AI-translated and verified by a human editor