As markets eagerly anticipate Nvidia (NASDAQ:NVDA)'s upcoming earnings report, Barclays analysts warn that it could serve as a "reality check" for the broader market, particularly in the tech sector.
In a client research note, the bank highlights the significance of Nvidia's earnings, set for release next week, in maintaining the momentum behind the AI and tech investment narrative that has dominated the market since late 2022.
The enthusiasm surrounding AI, which gained traction following the launch of ChatGPT in November 2022, was bolstered by Nvidia's "blowout earnings" in the first quarter of 2023.
According to Barclays, these results provided "concrete evidence the AI theme could deliver hard revenue growth."
Since then, Nvidia's earnings have consistently beat expectations, driving both the tech sector and the broader market. However, Barclays cautions that "anything less than another beat and raise" in Nvidia's upcoming report "may prove to be a disappointment, with wider implications for the overall market."
In parallel, Barclays is closely monitoring Federal Reserve Chair Jerome Powell's speech at Jackson Hole.
The speech is expected to "fine-tune policy expectations" as the market has already priced in a dovish stance from the Fed.
The bank notes that with four rate cuts being priced by OIS swaps before year end, the speech may not drastically alter the current market outlook, but it could influence short-term movements in rates and equities.
Barclays notes that while "the direction of travel is towards easier Fed policy," much of this dovish sentiment is already reflected in current market prices.
As such, the Jackson Hole event, coupled with Nvidia's earnings, could be pivotal in determining whether the market continues its current trajectory or faces a period of reassessment.