The artificial intelligence trade has been losing its luster as of late. Shares of Alphabet (GOOG, GOOGL), Amazon (AMZN), and Microsoft (MSFT), three of AI’s biggest players, are down over the last month, with Google parent Alphabet dropping 14%, Amazon off about 8%, and Microsoft falling more than 7% as of Thursday.

The stock moves come after the companies, along with fellow hyperscaler Meta (META), confirmed they’ll continue to pour billions of dollars into building out their AI infrastructure over the coming quarters — without providing much insight into when they’re going to turn all of that spending into revenue. That, along with the recent market turmoil, has put a damper on AI company stocks.

But the most important component of the AI trade, Nvidia (NVDA), still has to report its earnings. The chip company’s performance could turn around the AI trade more than any hyperscaler. Unlike those software firms, revenue hasn’t been a problem for Nvidia. Still, if it falls short of Wall Street’s already sky-high expectations, it could bring the AI trend down with it.

Nvidia’s huge year-over-year gains won’t last forever

Alphabet, Amazon, and Microsoft’s AI spending might be giving investors pause, but it’s helping pad Nvidia’s bottom line. The company’s Hopper AI chips are the most sought-after on the market, and the firm is set to begin ramping up production of its Blackwell line later this year.

The company controls 80% to 95% of the market for high-powered AI chips, according to Reuters. That means every time a company says it's spending on AI capabilities, chances are it’s buying up, or at least using, Nvidia’s processors.

But Nvidia’s second quarter report also marks the start of what will be several quarters of difficult year-over-year revenue growth comparisons. The company’s fiscal Q2 2024 revenue came in at $13.5 billion, up 101% year over year. Data center revenue topped $10.3 billion, up 141%.

Each subsequent quarter has seen ever more impressive year-over-year gains for the chip giant. But that party won’t last forever. In its most recent quarter, Nvidia reported revenue of $26 billion, a 262% increase from the $7.19 billion the company reported in the prior year.

For its upcoming second quarter report, Wall Street analysts are anticipating revenue of $28.6 billion, a 112% year-over-year jump. And while that still represents an enormous increase in revenue, it’s not as staggering as the growth the company has seen in its previous quarters. And that could turn off some investors.

Nvidia is still the AI trade’s bright spot

That’s not to say Nvidia isn’t expected to continue raking in cash, or that Wall Street is down on the company. As of Thursday, 66 analysts had Buy ratings on Nvidia’s stock. Just seven had Hold ratings and only one had a Sell rating.

It’s safe to say Wall Street has confidence in the company’s outlook. After all, as UBS analyst Timothy Arcuri pointed out in a recent investor note, semiconductor manufacturer TSMC, which produces Nvidia’s chips, posted strong quarter-over-quarter results in its high-performance computing segment. That should indicate another potentially stellar quarter for Nvidia is in the offing.

Nvidia, unlike software companies, also benefits from the fact that its products have a real tangible benefit for its customers now. Hyperscalers are putting the company’s chips to work as fast as they can to develop and power AI models. But AI-powered software is still in a foggy kind of testing phase. Companies are implementing AI enterprise software, but it’s not as though its impact on their employees’ productivity will skyrocket overnight.

What’s more, experts say it’ll still take years for AI-powered software like Microsoft’s Copilot or Google’s Gemini to truly pay off for business customers. And while those companies are busy iterating on their products, Nvidia will keep on selling them its hardware.

So, while the AI trade may have taken a hit over the last month, its biggest winner will continue powering forward.

Email Daniel Howley at [email protected]. Follow him on Twitter at @DanielHowley.

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