NVIDIA market value evaporated more than $180 billion Image source: Daily Economic News Data map

What happens when Nvidia's "imperfect" earnings reports are examined by Wall Street's "perfectionism"?

After hours on Wednesday (August 27), the "world's first stock" Nvidia handed over a beautiful performance sheet, a tiny "flaw" of only $200 million, but it instantly pierced the extremely sensitive nerves of the market. Its share price fell by more than 5% after hours, and in the next two trading days, its market value evaporated by more than 180 billion US dollars.

The reason is that Nvidia recorded data center business revenue of US$41.1 billion in the second quarter of fiscal year 2026, slightly lower than market expectations of US$41.3 billion.In the eyes of some investors, this $200 million gap is "like you scored 98 points in the test, but everyone expected you to score 100 points in the test, and the result was still disappointing."

The reason why Wall Street is so harsh on Nvidia's performance is that its huge market value of up to $4.30 trillion is deeply tied to the entire US stock market and even the "new engine" of the US economy: the construction of AI data centers. Any signal that deviates from expectations can be amplified infinitely and set off a violent chain reaction.

Giant kidnapped by "perfect expectations": Why is the market so sensitive to $200 million?

Screenshot of Nvidia's official account

Note: Non-GAAP is a non-mandatory disclosure matter that is voluntary by management and supplements the financial statements.

Measured by any objective criteria, NVIDIA¡¯s earnings report is bright. Quarterly revenue was $467.43 billion, up 56% compared to the market expectation, slightly above $462.3 billion; core data center business revenue was high, up to $41.1 billion, up 56% compared; adjusted earnings per share was $1.05, up 54% compared to the expectation.

However, this set of data still fails to meet Wall Street¡¯s ¡°perfectionism.¡±The $41.10 billion in data center revenue, which missed analysts' expectations of $41.30 billion, was instantly seen by the market as a signal that cloud customers were becoming cautious about spending on AI infrastructure.

Ross Mayfield, an investment strategist at Baird, said bluntly,The market has long been accustomed to Nvidia's high growth and has placed irrational "perfect expectations" on it. Any subtle blemishes can be magnified and trigger an overreaction.

Harry, an investor who has held Nvidia shares since 2023, told a reporter from "Daily Economic News" (hereinafter referred to as "every reporter"): "Since Trump took office, the overall volatility of U.S. stocks has intensified, and investors are easy to be emotionally coerced.Nvidia's decline has little to do with valuation, but the market overreacted."He cleared Nvidia stock in April this year, but soon regretted it and eventually bought it back in July. In his view, short-term fluctuations are inevitable, but Nvidia has built a strong moat with its computing power card. "Buying on falls" is the investment strategy he sticks to at the moment.

Another investor, Chleo, who lives in Seattle, USA, bought Nvidia as early as when the stock price was about $70 and has been holding it ever since. She told every reporter that the outstanding performance and the stock price fell, more because the market had too high expectations for Nvidia. "It's like you scored 98 points in the test, but everyone expected you to score 100 points in the test. In the revenue of more than 40 billion U.S. dollars, the gap of 200 million U.S. dollars is almost negligible." Despite the stock price fluctuation, she is still optimistic about Nvidia's long-term growth space and plans to "buy in batches on dips."

Despite the share price volatility, analysts remain bullish on Nvidia. Dan Ives, an analyst at investment bank WedBush, said in a research report sent to every reporter. "This earnings report is very important to the entire technology community, and it is also a guide. It shows that the AI revolution is entering a new round of growth. There is only one chip company in the world driving this AI revolution, and that is Nvidia." He predicts,The company is on track to reach a $5 trillion market cap by early 2026Several investment banks have also raised their price targets for Nvidia

Several investments increase the target price of NVIDIA Image source: each chart

The "NVIDIA dependency" of US stocks: one company affects the entire market

There are U.S. media pointing out that Nvidia¡¯s ability to sustain profitability, the importance for the stock market as a whole, even exceeds whether the U.S. Federal Reserve will cut interest rates at the next meeting.This is precisely the deepest reason why Wall Street is so demanding its performance ¨C the whole movement of the U.S. stock, increasingly to look at the ¡°face¡± of Nvidia.

Today, NVIDIA has a market value of $4.3 trillion, accounting for 8% of the total market value of the Pepsi 500 index.That's more than any company they've tracked in the past 35 years, according to the Leuthold Group, an independent investment research firm.In the Nasdaq 100 index, which is dominated by technology stocks, Nvidia's market value accounts for as much as 14.43%, even surpassing Cisco at the height of the Internet bubble.

This unprecedented concentration has had a huge impact on the entire US stock market. Because passive funds such as index funds and ETFs manage a lot of wealth, they "passively" consistently buy Nvidia based on market cap weightings. Morningstar data shows that currently, the number of ETFs providing leveraged exposure to Nvidia is equal to the number of ETFs tracking the S&P 500 index with a total market capitalization of up to $52 trillion. Among them, the larger GraniteShares double-long Nvidia Daily ETF has accumulated assets to US $4.56 billion since its launch in December 2022.Huge amounts of money are linked to Nvidia's share price, which affects the whole body.

Torsten Slok, chief economist at Apollo Global Management, said:In the first half of this year, as much as 35% of the growth in the market value of the S & P 500 index came from Nvidia alone.SimCorp estimates based on the Axioma US Equity Factor Risk Model,If Nvidia's share price falls by 25%, the S & P 500 could fall by 4.4%.

According to data from JPMorgan Chase, retail investors now account for about 18% of U.S. stock trading volume, almost double that of a decade ago. Most of these funds have flowed into the stock market through index funds, the most popular of which is the fund tracking the S&P 500 index. Slok believes that buying an S&P 500 index fund usually gives people the impression that you have bought 500 different stocks, thus diversifying your investment. But the reality is that the growing high concentration of the S&P 500 has become a major problem.

With NVIDIA¡¯s continuously renewing market value record, some Wall Street investors are reluctant to compare it to Cisco¡¯s pre-Internet bubble company. Nevertheless, NVIDIA¡¯s performance in terms of profitability is far superior to that of Cisco in the year. Data show that Cisco¡¯s average five-year net profit rate between 1996 and 2000 was around 17.2%, while by January 2025, NVIDIA¡¯s average five-year net profit rate was up to 40.34%.

Huang Renxun, CEO of Nvidia, image source: Visual China

U.S. economy¡¯s ¡°new engine¡±: AI spending outweighs consumption

The stock market is the "barometer" of the economy. As the weight of the stock index is increasingly concentrated on AI companies such as Nvidia, the driving force of the U.S. economy is also undergoing a historic change: the "money-burning" frenzy triggered by the construction of AI data centers is replacing traditional resident consumption and becoming The biggest engine driving economic growth.

Analysts at Renaissance Macro Research estimate thatSince 2025, AI data center spending has contributed more to U.S. GDP growth than consumer spending, for the first time in history.Some analysis even pointed out thatWithout the construction of AI data centers, the GDP may have actually shrunk in the context of the uncertain macroeconomic situation.As a result, data center spending may delay the arrival of the recession.

This shows that the U.S. economy is deeply tied to NVIDIA because most of the AI-related spending flows to NVIDIA. NVIDIA chief financial officer Colette Kress said on August 28 that in the latest fiscal quarter,Big cloud providers account for about 50% of the company¡¯s data center revenue, while data center operations account for 88% of NVIDIA¡¯s total revenue.

Alphabet, Microsoft, Meta, and Amazon have also announced that they will invest $400 billion in capital spending this year, mostly for AI infrastructure construction.Nvidia's revenue in the second fiscal quarter of 2026 is highly dependent on two mysterious customers. Among them,"Customer A" accounted for 23% of total revenue,"Customer B" accounted for 16%, and the two together accounted for 39%.This proportion has increased significantly from 25% in the same period last year (14% and 11% respectively). Nvidia predicts that by the end of this decade, total AI infrastructure spending will reach US$3 trillion to US$4 trillion.

Brian Colello, senior stock analyst at Morning Star, said in an interview with each reporter that NVIDIA¡¯s GPU and AI infrastructure is still in a state of lack of demand. Unlike the Internet bubble of that year, NVIDIA¡¯s sales are now targeted by several of the world¡¯s largest technology companies, which are still unable to expand their infrastructure.

While Nvidia has a stronger earnings base and a stronger customer base than it did during the dotcom bubble, the highly concentrated revenue structure itself poses the biggest risk to the market. When the fortunes of a company are so closely intertwined with the pulse of the entire market, or even the economic growth of a country, it is impossible for any investor to ignore the chill it faces at the top. Nvidia's growth continues, but its "perfectionist" shackles are also getting heavier and heavier.

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