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Before the market opens, NVIDIA (NASDAQ:NVDA) shares are down 3% after releasing its latest quarterly results. Given the fact that it has one of the largest single impacts on the movement of the S&P 500This is what I think could be in store for the index until the end of the year.
Details behind the results
This morning's (November 21) decision really interests me for several reasons. Nvidia's results exceeded market expectations. Revenue reached $35.08 billion, solidly beating the forecast of $33.16 billion. Even overall, adjusted earnings per share beat the expected $0.75 by hitting $0.80. For the record, this was the eighth consecutive quarter in which Nvidia beat Wall Street forecasts.
Despite such a strong performance, the stock fell immediately afterwards. I think this can be attributed to the fact that the pace of growth is starting to slow down. For example, year-over-year revenue growth was 94%. This may seem incredible, but let's put things in perspective. Revenue growth for the previous quarter compared to the comparable period in 2023 was 122%. The previous quarter increased by 262% and the previous quarter by 265%.
So the slowing pace of increase is one point that has made investors stop and think. Another reason for the stock price reaction is investor sentiment. Although the results were excellent, investors were clearly expecting something even more surprising. Put another way, the bar was set so high that, unfortunately, people would be disappointed with almost everything that was released.
Implications for the index
Nvidia stock is up 190% over the past year. Given the size of the business, it has certainly contributed to the 30% gain in the S&P 500 index over the same period.
In the short term, I think we could see the index stagnate. The move following Nvidia's results will likely cause investors to pause and take a breather from the rally. Do things need to be recalibrated? Is the price-earnings ratio excessive? Can the business continue to exceed expectations in the coming year? These are some likely points to consider.
From my perspective, I don't see this as the beginning of a major correction in S&P 500 or Nvidia stock. But I do think it will slow down the substantial advance of the index towards the end of the year. This relates to the fact that some traders and investors might be looking to reduce their risk for Thanksgiving, and some would choose to sit idle until January.
Looking ahead to 2025, I think the S&P 500 will continue to rise, but other sectors will be key drivers. For example, with the new Presidency, I think US stocks like tesla will overcome. On that basis, I'm not buying Nvidia right now.
