This week's market focus: Can NVIDIA's earnings report revive the "AI faith" in the US stock market? US January PCE data is expected to ease inflation concerns

According to the Zhitong Finance APP, U.S. stocks performed poorly over the past week due to a series of economic data raising concerns about lower-than-expected economic growth and persistently high inflation. The S&P 500 index fell approximately 1.7% last week, while the Nasdaq Composite and Dow Jones indices dropped about 2% and nearly 3%, respectively.

In the coming week, NVIDIA (NVDA.US) is expected to be in the headlines with its earnings report. Home Depot (HD.US), Lowe's (LOW.US), and Salesforce (CRM.US) will also be in focus with their earnings announcements.

In terms of economic data, investors will closely watch the U.S. January PCE price index data to be released on Friday, which is a favored inflation indicator of the Federal Reserve and will reveal the inflation situation. Meanwhile, the revised annualized quarterly rate of U.S. real GDP for the fourth quarter will also attract market attention, set to be released on Thursday.

Inflation

As inflation remains above the Federal Reserve's target and the labor market fundamentals are solid, the market is betting that the Federal Reserve will not cut interest rates in the first half of 2025.

The U.S. January PCE price index data to be released on Friday will reveal the latest status of U.S. inflation. Economists expect the core PCE price index for January to grow by 2.6% year-on-year, down from the previous value of 2.7%; the overall PCE price index is expected to increase by 0.3% month-on-month, up from the previous value of 0.2%.

Due to differences in components, the price increase rate indicated by the U.S. January core PCE price index is expected to be more moderate than that shown by the U.S. January CPI data. Michael Gapen, Chief U.S. Economist at Morgan Stanley, pointed out that a year-on-year increase of 2.6% in the U.S. January core PCE price index "indicates a substantial decline in the core inflation rate over the past 12 months," which aligns with their prediction of a 25 basis point rate cut by the Federal Reserve in June.

NVIDIA Earnings Report

The AI chip giant will announce its fourth-quarter results after the U.S. stock market closes on Wednesday. Wall Street analysts expect NVIDIA's Q4 revenue to grow by 73% year-on-year to $38.26 billion, with adjusted earnings per share expected to rise by 63% year-on-year to $0.84.

The key focus of this earnings report will be whether the AI data center business can maintain its growth momentum, whether there are any technical delays in the mass production of Blackwell GB200 architecture products, the market transition pace of GPU products, and the company's management's strategic assessment of the global AI application commercialization process.

Additionally, due to the emergence of the DeepSeek-R1 "low-cost + high-performance" open-source model, which has triggered a reassessment of the demand for large-scale AI model computing power, investors will also pay close attention to NVIDIA CEO Jensen Huang's views on the demand environment for AI chips. Notably, Huang recently stated that the launch of the DeepSeek-R1 model will not suppress AI computing demand; rather, it may serve as a catalyst for the market's pursuit of efficient AI architectures, thereby driving technological iteration across the entire AI industry. He emphasized that despite the continuous improvement in model pre-training efficiency, the computing power consumption in the AI inference phase, as the core stage of practical applications, has an incompressible nature So far this year, most of the "Seven Giants of U.S. Stocks," including NVIDIA, have underperformed the S&P 500 index, and their contribution to this benchmark index is not as strong as in the past two years. Bank of America analyst Vivek Arya stated, "NVIDIA's stock price may experience volatility after the earnings announcement, but we expect positive momentum to return as investors look forward to NVIDIA unveiling its GB300 product line at the upcoming GTC conference and expanding its potential market into robotics and quantum computing technologies."

Market Uncertainty

Despite the resilience shown by U.S. stocks amid numerous headlines regarding President Trump's policies, various survey data indicate a sense of concern. Data released last Friday showed that the University of Michigan's consumer confidence index for February fell to 64.7, the lowest level since November 2023. Meanwhile, the economic output measured by the SPGI Composite PMI for February dropped to its lowest level in 17 months.

Concerns about tariffs and their potential to drive up inflation are at the core of these two survey reports. Chris Williamson, Chief Economist at S&P Global Market Intelligence, stated, "The optimism among U.S. businesses at the beginning of the year has dissipated, replaced by heightened uncertainty, stagnation in business activity, and a bleak outlook for rising prices. Companies are generally worried about the impact of federal government policies, including spending cuts and geopolitical developments." He added that U.S. businesses' optimism for the coming year has fallen to "the most pessimistic level since the pandemic."

Although U.S. stocks declined last week, they remain near historical highs. Citigroup U.S. equity strategist Scott Chronert noted that as U.S. stock valuations approach historical peaks, the market may experience more volatility on its upward path in 2025 as investors try to digest the impact of Trump's policies. He stated, "We believe there is still upside potential for the S&P 500 index before the end of 2025, but there may be a period of sustained volatility. However, pullbacks could provide us with better buying opportunities."