Nvidia's Blowout Quarter Sparks AI Rally That Quickly Fades Under Valuation Pressure

Nvidia’s third-quarter results delivered a powerful yet brief jolt to the struggling artificial intelligence investment narrative. The chipmaker’s stellar performance—$57 billion in quarterly revenue, representing a 62% year-over-year surge—initially reinvigorated a stalling tech sector rally. On the surface, the numbers looked exceptional: the data center segment alone generated $51.2 billion in sales, climbing 66% annually. The company’s forward guidance of $65 billion in quarterly revenue further exceeded Wall Street’s most optimistic projections.

Yet beneath this superficial enthusiasm lay a troubling pattern that would define the trading session. Nvidia shares soared approximately 5% at the opening bell, temporarily lifting the broader market with them. The Dow gained as much as 700 points, while the S&P 500 and Nasdaq both advanced beyond 1%. However, this momentum couldn’t sustain itself. By midday, the low of investor conviction had reasserted itself, and all three major indices reversed direction. Nvidia itself abandoned its early gains, finishing in negative territory as the selling pressure mounted.

The problem wasn’t the earnings quality—it was the mathematics of valuation. While David Rosenberg of Rosenberg Research acknowledged that “one stock moving the market like Nvidia remains extraordinary,” he simultaneously sounded the alarm on the underlying issue. The AI sector, he argued, represents “a bubble of epic proportions,” with current market expectations implying an eightfold expansion of the AI market over five years. Such assumptions, Rosenberg suggested, strain credibility given historical precedent.

Meanwhile, Fed expectations provided little support. Traders immediately recalibrated their December rate-cut probabilities, which fell below 50% according to CME FedWatch calculations. This pivot from monetary easing hopes dampened sentiment across growth-dependent sectors, even as Nvidia’s CEO Jensen Huang delivered confident commentary on enterprise demand strength.

Wedbush’s Dan Ives remained bullish, characterizing Nvidia as “the foundation for the AI Revolution” and validating management’s strategic positioning. However, the rapid fade from market highs underscores a persistent tension: the disconnect between exceptional business execution and unsustainable valuation expansion. Nvidia delivered the blowout quarter the market needed, but whether the AI infrastructure boom can justify current prices remains the unresolved question driving recent volatility.