During the past three years, the stock market has been on an absolute tear. The broad-based S&P 500 has gained 73%, while the tech-heavy Nasdaq Composite is up 99% (as of this writing). That's well ahead of the average stock return of 10% annually. Most experts agree that artificial intelligence (AI) has played a pivotal role in the market's ascent.
In recent months, many software-as-a-service (SaaS) stocks have been in freefall. Recently released AI tools have sparked fears that they could displace many existing accounting, legal, or sales software offerings, prompting some investors to abandon ship.
Two critical financial reports will be released after the market close on Wednesday, offering crucial insight into the current state of the AI revolution and its implications for the future -- so Thursday could be a big day for the stock market.
Image source: Nvidia.
Ongoing demand for GPUs?
Nvidia (NVDA 1.53%) has been one of the undisputed beneficiaries of the advent of AI, with the stock up 1,200% since the start of early 2023. The company's graphics processing units (GPUs) have become the gold standard for running AI models in data centers, driving Nvidia's revenue and profit to record levels. As such, the company has become a bellwether for the state of AI, so all eyes will be on Nvidia when it reports the results of its fiscal 2026 fourth quarter (ended Jan. 26).
The company's third-quarter results were telling. Revenue of $57 billion jumped 62% year over year and 22% quarter over quarter. This drove diluted earnings per share (EPS) to $1.30, up 67%. CEO Jensen Huang noted that sales of Nvidia's Blackwell chips were "off the charts, and cloud GPUs are sold out."
Management is forecasting accelerating growth in Q4, guiding for record revenue of $65 billion, or growth of 65%, and adjusted EPS of $1.45, an increase of 63%. Wall Street is equally bullish, with analysts' consensus estimates calling for revenue of $65.7 billion and adjusted EPS of $1.53.
Investors will be watching closely to see if Nvidia meets or exceeds its guidance and Wall Street's expectations. Perhaps more importantly, they will be parsing management's comments for insight into the ongoing demand for its AI-centric processors.
Nvidia represents a key holding in the S&P 500, making up approximately 7.4% of the weighted index, so it can also have a disproportionate impact on its movement. The company's report could fuel big gains -- or losses -- on Thursday.
NASDAQ: NVDA
Key Data Points
Declining demand for SaaS stocks?
Recent advancements by AI start-up Anthropic have fueled the recent sell-off in software stocks. Investors fear updates to its suite of productivity tools could reduce demand for some of the most popular SaaS offerings, taking down one of the largest segments of the software market and sparking the "SaaSpocalyse."
Salesforce (CRM +2.36%) is widely recognized as a pioneer in SaaS and is the world's leading cloud-based customer relationship management (CRM) platform. As such, fears about the future of its offerings have crushed the stock, which has fallen 30% since the start of 2026. Investors will be keeping a keen eye on the company's results, as weakening demand could confirm investors' worst fears.
For Salesforce's fiscal 2026 third quarter (ended Oct. 31), revenue of $10.3 billion climbed 9% year over year, while EPS of $2.20 increased 38%. Perhaps more importantly, the company's remaining performance obligation (RPO) -- or contractually obligated revenue that hasn't yet been recognized -- grew 12% to $59.5 billion. When RPO grows faster than revenue, it indicates strong demand and generally bodes well for the future.
Management's guidance seems to confirm that, as Salesforce is forecasting fourth-quarter revenue of $11.2 billion at the midpoint of its guidance, representing growth of 11%. Heavy investment in AI-related tools and services is expected to drag on its profits, with EPS down 15%. The company is also expecting its current RPO to climb 15%.
Salesforce is widely regarded as the godfather of SaaS and, as such, is a bellwether for the software industry. The company accounts for only 0.28% of the S&P 500's weighting, but its results could provide insight into overall SaaS demand, which could fuel the market's moves on Thursday.
NYSE: CRM
Key Data Points
Investors will be watching
Both Nvidia and Salesforce will be releasing their financial reports after the market close on Wednesday. Nvidia will provide keen insight into the ongoing demand for the chips that underpin AI. Similarly, Salesforce's results and management's commentary will likely offer clues regarding future demand for SaaS stocks.
That said, some believe the death of SaaS stocks has been greatly exaggerated. Huang was asked about the AI disruption of software and suggested the current panic is overblown. "There's this notion that the software industry is in decline and will be replaced by AI." He argues that AI will likely use existing solutions, rather than replacing them. "Would you use a hammer or invent a new hammer?" he asked. "There's a whole bunch of software companies whose stock prices are under a lot of pressure because somehow AI is going to replace them," Huang said. "It is the most illogical thing in the world."
We'll have a much clearer picture on Thursday.
