Feb. 26 could be a huge day for the stock market. Depending on how large the news is, one company may steer the market one direction or another based on what it says. The company I'm talking about is none other than Nvidia (NVDA 1.53%), the world's largest company by market cap by a wide margin. Nvidia makes up a healthy chunk of some of the most important indexes in the market, and a good (or bad) quarter could cause a significant move in the stock market on Feb. 26, the day after Nvidia reports earnings.
I'm bullish on Nvidia's outlook and stock, but the market has been fairly neutral to Nvidia's stock over the past six months. I think that changes on Feb. 26, and investors need to be ready for what's bound to happen following an expected strong earnings announcement.
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Nvidia is a key part of several indexes
The reason why Nvidia has such power to move the market is because of its integration within several of the most important indices on the market. The most popular is the S&P 500 (^GSPC 1.52%), and Nvidia makes up about 7.1% of it. It's an even larger makeup of the Nasdaq Composite (^IXIC 1.78%), where it's over 13% weighted. Lastly, Nvidia is also a member of the Dow Jones Industrial Average (^DJI 1.56%). Because that's a price-weighted index versus a market-cap weighted one, Nvidia is only a 2.3% component.
Still, Nvidia's integration in these major indexes means it has huge power to steer the performance of these indexes on the days when it has a large movement. But Nvidia also isn't in a vacuum.
NASDAQ: NVDA
Key Data Points
If Nvidia's stock has a great day, it will also likely drag up some of its competitors, like Broadcom (AVGO 1.63%) and AMD (AMD 3.46%), as a bullish outlook for Nvidia tends to spill over into these companies as well. Furthermore, suppliers like Taiwan Semiconductor (TSM 4.96%) will also spike due to Nvidia's success. Once all of these companies start to add together, you get a very large portion of the market starting to have a good day, which kicks off buying throughout the entire market.
A positive Nvidia earnings report could be a huge catalyst for the entire market, and I'm quite bullish on Nvidia's stock heading into earnings.
Nvidia's stock hasn't been this cheap in a while
Since the AI boom began in 2023, Nvidia's stock hasn't traded at unbelievable premiums, but it also hasn't been cheap either. Currently, it trades for 23.6 times forward earnings.
NVDA PE Ratio (Forward) data by YCharts
Compared to the broader market, as measured by the S&P 500, it's not much more expensive, as the S&P 500 trades for 21.9 times forward earnings. The Nasdaq 100 is a better comparison, as it's filled with mostly tech stocks. The average forward earnings valuation in that index is 25.3, so Nvidia is really quite cheap compared to some of its peers.
This cheap valuation may make sense if Nvidia's growth was expected to slow, but it isn't. Wall Street analysts expect fiscal year (FY) 2026 (ending January 2026, the current fiscal year) growth to come in at 57% year over year. For FY 2027, they project 65% growth. There are several catalysts for the accelerating growth rate, including rising AI spending, new chip architecture, and a return of graphics processing units (GPUs) sales to China. All of these factors add up to what's expected to be an impressive year for Nvidia, which is why I think the stock will soar as a result.
Nvidia looks like a great buy heading into earnings, but don't wait too long, as the stock could be priced far higher on Feb. 26 after it reports following the market close on Feb. 25.
