After investors anxiously waited last week for artificial intelligence giant Nvidia (NVDA 1.53%) to deliver its fiscal 2026 fourth-quarter report, the company provided them with better-than-expected results and issued better-than-expected guidance for its current quarter. Furthermore, its gross margin guidance was solid.
Yet the stock fell by nearly 5.5% on Feb. 26, the day after the report. Here's what Nvidia's blockbuster quarter and Wall Street's response to it tells us about the state of the stock market and artificial intelligence trade.
What more can investors ask for?
Nvidia reported $1.62 adjusted earnings per share on $68.1 billion of revenue, handily beating the earnings of $1.53 per share on $66.2 billion in revenue that Wall Street analysts expected. Furthermore, management guided for revenue of roughly $78 billion in the current quarter. The consensus analyst estimates had only projected $72.6 billion. Moreover, that guidance figure does not factor in any assumptions of revenue from selling chips in China.
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Nvidia also guided for full-year gross margins of about 75%, after delivering a 75.2% adjusted gross margin in the recent quarter, indicating that the company is maintaining its strong pricing power.
CFO Colette Kress also said that customers are excited to get their hands on the company's next-generation AI platform, Vera Rubin, which will succeed the current Grace Blackwell platform. The first Vera Rubin samples have been sent to some customers, and Nvidia expects to begin production shipments in the back half of the year.
"We aren't sure what else investors want to hear at this point," Bernstein analyst Stacy Rasgon said in a research report following the earnings release. "We suppose the sheer scale of the numbers at hand may have investors a bit shook."
The market is more uncertain than ever about AI
After a blowout quarter, one would think that Nvidia would at the very least be trading a little higher. The stock has not performed particularly well so far in 2026, though it is still up over 42% in the past year. Nvidia now trades at a fairly reasonable 24 times expected forward earnings, considering it has grown its top line by 73% year over year and its earnings nearly doubled.
So what gives? Well, I think this tells you just how conflicted the market is about AI now. One issue is whether the hyperscalers, including Microsoft, Meta Platforms, Alphabet, and Amazon, will continue to spend as freely as they have. Together, those "Magnificent Seven" companies have guided for a total of $650 billion to $700 billion in capital expenditures in 2026, largely to fund AI infrastructure.
NASDAQ: NVDA
Key Data Points
The question is, what will happen after this year? Some think AI capex could slow due to constraints on computing capacity, power supply, surging memory prices, or concerns about whether the returns on those investments will justify them. That could be a big issue for Nvidia, which just said that hyperscalers account for over half of its data center revenue.
After all, many CEOs and experts have publicly said that companies can't possibly make good returns on this level of investment, yet the hyperscalers are barreling ahead anyway because they don't want to fall behind their rivals in what some have called the fourth industrial revolution.
Ultimately, to my mind, the market's bizarre reaction to Nvidia's latest report shows just how uncertain investors are about the future of AI. Not long ago, a Substack think piece from Citrini Research, a small market research firm, essentially modeled a scenario in which AI performs better than expected, becomes so productive that it eliminates many high-paying jobs, significantly increases unemployment, and sends the market down by a whopping 38% between now and June 2028. Apparently, many folks on Wall Street took note of the Citrini piece -- which the firm explicitly described as "a scenario, not a prediction" -- and the market took a big hit as a result.
It's rare for a Substack piece to cause such a big market move. That one appears to have done so in this case illustrates that investors don't believe they can reasonably predict what will happen. Nvidia's recent earnings and the market reaction to them highlight this conundrum yet again.
