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Nvidia’s hotly anticipated fourth-quarter earnings, slated for after the close of trading Thursday, is widely expected to jolt markets from their recent poor run and power stocks into a new round of gains on the tailwind of the artificial-intelligence boom.

The undisputed leaders of the AI race, with a hammerlock on its most important component, the Blackwell processor, contracts with the biggest hyperscalers, and investments in both OpenAI and Anthropic, Nvidia sits at the epicenter of the world’s hottest technology and the markets biggest growth engine.

And that might be the problem.

At present, two of the biggest concerns weighing on investors are inexorably tied to the AI trade, and both are likely to be intensified by a blowout earnings report from Nvidia.

The first links to the amount of capital spending expected this year and beyond from hyperscalers such as Microsoft, Meta Platforms, Amazon.com, Alphabet, and Oracle.

Collective capex could cross $1 trillion this year, according to Goldman Sachs, and rise to as high as $4 trillion by the end of the decade, according to Morgan Stanley.

Setting aside concerns that the staggering sums have yet to produce meaningful return—given the technology’s nascent development—the capex commitments are eating into nearly all of the cohort’s free cash flow, limiting stock buybacks and straining corporate bond and private credit markets.

A robust Nvidia outlook, as well as commentary on longer-term demand from CEO Jensen Huang, will keep that conversation going and test investors’ faith in the broader AI wager.

Analysts expect Nvidia to post $66.2 billion in revenue over the three months ended in January, a 73% increase from the same period last year. For the fiscal year, Nvidia likely generated an eye-watering $215 billion in overall revenue, nearly all from its data-center division.

A confirmation of AI spending plans from Nvidia’s biggest customers is great for its bottom line but less for investors who remain worried over hyperscaler largess.

An index of the so-called Magnificent Seven tech giants has fallen 5.5% for the year, with Nvidia and Apple, which isn’t spending nearly as much on AI investments, the only stocks in positive territory.

The market’s more recent angst, however, is somewhat paradoxical. Investors appear both concerned that AI spending isn’t generating sufficient return but also are vworried that its adoption will disrupt a host of sectors in the economy over the very near term.

Software stocks, of course, have been pummeled as a result, but we’ve also seen notable pullbacks in financial information companies, education and edtech, and media and advertising. A rotation into value stocks, at the same time, has kept the S&P 500 largely unchanged over the past four months.

“Weakness across the technology sector (particularly within software) has weighed on the S&P 500 this year and contributed to the index’s difficulty breaking through the 7000‑point barrier,” said Adam Turnquist, chief technical strategist at LPL Financial. “A sustained move to new highs will likely require broader participation across tech and, at minimum, stabilization in software stocks.”

None of those issues will be addressed by either an earnings beat from Nvidia or a stronger-than-expected outlook. In fact, commentary on AI demand, and any technical discussion of the next-generation processor known as Rubin, can only accelerate concerns that AI adoption will be even more disruptive.

“We are seeing continued dispersion in software and other tech adjacent sectors, while money keeps piling into defensives,” said Ken Mahoney, president and CEO of Mahoney Asset Management.

“We can see if Nvidia can shed some light on the situation, but it does feel like regardless of how good the report and guidance, it’s probably baked in and we will get a muted reaction as we have for most of the earnings season.”

How investors react beyond Nvidia stock itself, however, could be far more important for the market’s direction over the coming weeks.

Write to Martin Baccardax at martin.baccardax@barrons.com

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