*

Investors focus on Nvidia's ( NVDA ) guidance for chip supply and

demand

*

Nvidia's ( NVDA ) market cap swing could reach $260 billion

post-results

in either direction

*

Nvidia's ( NVDA ) correlation with S&P 500 fell to 30% from 71%

last year

*

By Carolina Mandl

NEW YORK, Feb 21 (Reuters) - Nvidia's ( NVDA ) profit

report next week could steer the U.S. stock market's course, as

investors seek confirmation that the AI-driven investment trend,

which has powered equities for two years, is intact after last

month's panic-selling triggered by the Chinese startup DeepSeek.

Seen as a bellwether of the burgeoning AI industry, Nvidia ( NVDA )

is the world's second most valuable company, with a 6.3% weight

on the S&P 500, according to LSEG. Its shares have

skyrocketed over 550% over the last two years.

A recent stumble, however, came after the Chinese startup

DeepSeek unveiled a lower-cost AI model that was seen as a

threat to the dominance of U.S. rivals, driving Nvidia ( NVDA ) down

roughly 17% on January 27, equivalent to $593 billion - a record

one-day market value loss.

Shares have almost fully recovered from the tumble and the

company said DeepSeek's advances prove the need for more of its

chips, but apprehensive investors fear earnings could revive

some market turbulence.

"It's a tough setup going into the conference call next week

because there is some anxiety of wanting to kind of call the top

on Nvidia ( NVDA ). So I would not be surprised to see rotation and

fairly violent market reaction under any circumstance," said

Mike Smith, Allspring's head of growth equity team.

He said investors could rotate out of AI trades into sectors

such as healthcare, software and financials.

Nvidia ( NVDA ) options imply a 7.7% swing for the shares in either

direction following the results, in line with the stock's

average move of 7.6% on the day after results over the last 12

quarters, according to data from options analytics service

ORATS.

With the AI chipmaker's market capitalization hovering

around $3.4 trillion, the options-implied stock move equates to

a market value swing of about $260 billion, roughly the size of

Wells Fargo ( WFC ).

Nvidia ( NVDA ) is expected to post on February 26 a fourth-quarter

profit of $20.89 billion, driven by a roughly 72% rise in

revenues from a year earlier, LSEG data showed.

With good fourth-quarter numbers on their way, all eyes will

be on the guidance Nvidia ( NVDA ) provides for both supply and demand

for its chips to justify its own rich valuation, as well as the

sector's outlook.

Nvidia ( NVDA ) recently traded at about 32 times forward 12-month

earnings estimates, down from about 40 in early November,

according to LSEG Datastream. The S&P 500 trades at 22 times

forward earnings.

"Nvidia ( NVDA ) is the last piece of the market puzzle right now

that might help reset investor sentiment," said Matt Orton,

chief market strategist at Raymond James Investment Management,

adding the equities market has performed well despite

uncertainties around U.S. tariff and fiscal policy, a drop in

retail sales and a hotter-than-expected consumer price index.

"It can be the catalyst to help the market break out once

again," he said.

Markets have changed since the selloff triggered by

DeepSeek, as Nvidia ( NVDA ) has lost a lot of its power to move all

stocks since the beginning of this year. The correlation between

the chipmaker and the S&P 500 fell to 30% in 2025 from 71% last

year, according to Schwab's calculations.

Still it does not mean stocks are bulletproof in case the

bellwether Nvidia ( NVDA ) disappoints. "It's important to separate the

difference between the psychological effects of Nvidia ( NVDA ) on the

market from the statistical effect. To me, it is more of a

psychological move," said Joe Mazzola, Schwab's head trading and

derivatives strategist.

Investors will also be watching next week's release of U.S.

inflation numbers for January, especially after data last month

showed that inflation increased by the most in eight months in

December, amid robust consumer spending on goods and services.

Hotter-than-expected inflation data would probably prompt

the Fed to wait longer to cut interest rates.