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Futures edge higher with all eyes on high-stakes Nvidia results

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Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., August 15, 2023. REUTERS/Brendan McDermid/File Photo

U.S. stock index futures inched higher on Wednesday, with the spotlight firmly on Nvidia (NVDA.O) quarterly results due later in the day that could potentially reignite an artificial intelligence-fuelled rally in megacap growth stocks this year.

A blowout forecast from chip designer Nvidia last quarter helped the stock more than triple in value this year and powered large gains in other megacap shares in the ‘Magnificent Seven’ group, propelling the S&P 500 (.SPX) 14% higher.

Rising bets that Nvidia’s revenue target will once again surpass Wall Street estimates pushed the chipmaker’s stock to a record high on Tuesday, but analysts also fear that a failure to match investor expectations could trigger a wider selloff in stock markets.

“Nvidia’s valuation depends on confidence in the AI revolution and demand for its hi-tech chips and while it’s expected that this won’t have waned substantially, its stratospheric rise this year could make the stock vulnerable to any small set back,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.

“If the voracious demand for artificial intelligence technology shows little sign of abating, there is likely to be renewed enthusiasm for tech companies with their fingers in all sorts of AI pies.”

Traders in the U.S. equity options market are bracing for a larger-than-usual swing in Nvidia shares following the chipmaker’s earnings, which are due after markets close on Wednesday.

Nvidia shares were up 0.4% in premarket trading, while shares of other major technology and growth companies were mixed, with Tesla (TSLA.O) down 2.5% after a report said the company lowered the production target of its German plant.

Megacap growth stocks had stumbled in the first few weeks of August after signs of a still strong U.S. economy spurred worries that the Federal Reserve could keep interest rates elevated for longer, sending government bond yields surging.

Supporting equities on Wednesday, the yield on the 10-year U.S. Treasury note slipped from near 16-year highs hit in the previous session amid lingering concerns over higher-for-longer rates.

S&P Global’s flash U.S. Composite PMI index for August, due at 9:45 am ET, could provide additional clues on the strength of business activity and the path for interest rates ahead of a keenly awaited speech by Fed Chair Jerome Powell on Friday.

Traders’ bet the Fed would keep rates unchanged in September stands at 86.5%, according to CME Group’s FedWatch tool, though they have scaled back expectations of rate cuts from the central bank.

At 7:15 a.m. ET, Dow e-minis were up 34 points, or 0.1%, S&P 500 e-minis were up 4.25 points, or 0.1%, and Nasdaq 100 e-minis were up 4.75 points, or 0.03%.

Shares of drugmakers Arcus Biosciences (RCUS.N) and Merck & Co (MRK.N) advanced 28.7% and 1.3%, respectively, after Swiss rival Roche (ROG.S) inadvertently published positive lung cancer drug trial data from an interim analysis.

Sport retailers Nike (NKE.N) and Under Armour (UAA.N) fell 3.2% and 1.4%, respectively, after a downbeat profit forecast from Foot Locker (FL.N), whose shares slumped 28.4%.

Peloton Interactive (PTON.O) shares plunged 27% after the fitness equipment maker forecast first-quarter revenue below estimates.

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