By Ahmad Assiri, Research Strategist at Pepperstone
Nvidia’s earnings confirmed the continued strength of demand for AI chips and infrastructure and figures came in well above expectations, particularly in the data center segment which remains the main driver of revenue growth. The report reinforced the view that the AI investment cycle is still in an expansionary phase, helping semiconductor technology stocks after a period of consolidation. However, the limited price reaction reflects a reality that a large portion of the positive news had already been priced in, making the results appear more as confirmation of the existing trend, although the revenue beat of more than $2 billion above the average analyst estimate provides crystal clear confirmation of demand for the company’s products.
This pattern of market reaction reflects a shift in investor behavior, as markets are moving from the momentum-driven phase of the AI narrative toward a selective phase that focuses more on growth sustainability and the quality of cash flows. This helps explain the reduced price sensitivity to positive surprises compared with earlier periods, which could also be seen in implied volatility pricing ahead of the earnings release. Despite this pattern being reflected in trading and post-announcement reactions, a $200 price target for the stock is not unlikely, particularly as analysts update their expectations following the company’s positive forward guidance.
On the macro front, remarks by US Trade Representative Greer played a role in risk pricing, as he indicated that the average US tariff rate currently stands at around 10%, with the possibility of rising to 15% in the coming period if Trump chooses to do so. These statements came after the court decision that limited the use of the International Emergency Economic Powers Act as a legal basis for imposing broad tariffs, but at the same time clarified that the overall direction of US trade policy has not changed, only the tools have changed. This is likely to reduce the pace of volatility in trade policy changes in my view.
The implicit message from these remarks is that the US administration aims to maintain elevated tariff levels but through different legal mechanisms, pointing to a strong emphasis on policy ‘continuity’ despite legal changes. Greer appears to expect that US trading partners will maintain previously agreed arrangements. Implicitly, there also seems to be a degree of loss in effective negotiating leverage used in trade talks, and even if tariffs rise from 10% to 15%, the difference would not be particularly large compared with the levels seen last year, even with European partners.
From a market perspective, investors appear to be treating these developments as confirmation of a protectionist trade framework but at a slower intensity. This balance between higher tariffs and more stable expectations helps explain the continuation of range-bound trading with an upward bias led by semiconductor manufacturers in the United States and globally.
Overall, market movements reflect a phase combining two key factors, first; confirmation of the broader growth trend in the AI sector through Nvidia’s results, and the consolidation of a global trade environment near current tariff levels but with greater clarity regarding the broader trajectory.