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The market reaction to Nvidia’s (NVDA) earnings report, to be released after the close on Wednesday, February 21, will tell investors a lot about the short-term direction of this stock market.

We’re likely to learn more, however, from the reaction to an Nvidia beat rather than from an earnings miss.

Right now Wall Street analysts expect Nvidia to report earnings of $4.18 a share, up from 65 cents a share in the same quarter of 2022.

Which would lead to a big jump in the stock–a 543% year over year increase in earnings is decidedly positive–except that the stock is already ahead by 210% for the last year and trades at 96 times trailing 12-month earnings per share. That huge expected jump in earnings would serve to bring the forward earnings multiple on projected 12-month future earnings down to a still high but more reasonable multiple of 36.

In other words some of the good news from Wednesday’s earnings report is already factored into the stock price.

And we could expect Nvidia’s stock to fall if the company comes up short on expectations.

Such a drop wouldn’t tell us much other that investors were disappointed at a miss. (We would learn something important, though, if the company missed projections and the stock didn’t drop significantly.)

The best haul of information on market sentiment and investor expectations, however, would come if the company meets expectations and even delivers one of its typical 20% positive earnings surprises.

Would investors sell on the news on the theory that it doesn’t get any better than this?

Or would they buy on a positive earnings suprise because they believe the good news will keep on getting better for a while.

They buy or sell decision after a positive surprise will tell us a lot about investor appetite for risk and the degree of optimism about the future of trends in AI in particular and technology in general.

Stay tuned. To see whether investors are willing to put more money into the prospect of a continued stock market rally and one of the rally’s most expensive stocks.