The U.S. Federal Reserve has held interest rates steady since August 2023, when it last raised the federal funds rate to a 23-year high of 5.33%. But with inflation cooling and the unemployment rate ticking up, many Wall Street pundits predict the Fed will cut interest rates at its next meeting on Sept. 17 and 18.

Falling interest rates are typically good for the stock market — and I’ll explain why in a moment — but since a September rate cut is now widely expected, it’s unlikely to have a substantial impact on the market. Instead, I think investors should be focused on Aug. 28, which is the date Nvidia (NASDAQ: NVDA) will report its earnings for the fiscal 2025 second quarter (ended July 31).

Nvidia stock has soared 187% over the past year alone on the back of the company’s blockbuster financial results, so here’s why its upcoming report could have a much bigger effect on investor sentiment than the Fed meeting.

Nvidia is the AI industry’s bellwether

Nvidia designs the most powerful data center chips for developing artificial intelligence (AI) models. Demand is outstripping supply and it’s coming from a broad customer base, which includes established tech giants like Microsoft, and start-ups like ChatGPT creator OpenAI.

Nvidia’s H100 graphics processor (GPU) set the benchmark for the AI industry last year. Some tech companies have built clusters of over 100,000 GPUs, and considering they sell for up to $40,000 each, this has quickly become a multibillion-dollar market annually. In fact, Nvidia CEO Jensen Huang thinks data center operators will spend $1 trillion upgrading and expanding their infrastructure over the next five years.

Those operators include Microsoft, Amazon, and Alphabet, to name a few. They build data centers, fill them with Nvidia’s GPUs, and rent the computing capacity to businesses and developers who use it to create and deploy AI. Huang says data center operators can earn $5 in revenue over four years for every $1 they spend on Nvidia’s chips, so it’s a lucrative business for all parties.

Nvidia had a market share of over 90% in 2023, so it’s positioned to capture a significant chunk of that $1 trillion in value — depending how quickly the competition catches up. Most chip makers are releasing their own GPUs and benchmarking them against the H100, but Nvidia has already launched the H200 which can perform AI inference at twice the speed of its predecessor.

Plus, next year, Nvidia will begin shipping high volumes of its next-generation GPUs which are built on its new Blackwell architecture. The Blackwell-based GB200, for example, will be capable of performing AI inference five-times faster than the H100, so it’s a substantial leap. AI developers often pay for computing capacity by the minute, so faster chips can translate to significant cost savings.

That will buoy demand for Nvidia’s latest chips, and we should learn more about the rollout in the company’s Aug. 28 report.

Nvidia is set for another blockbuster quarter

According to Nvidia’s guidance, the company will show $28 billion in total revenue when it reports its results for the fiscal 2025 second quarter. That’s much higher than the $26.6 billion forecast Wall Street originally expected, but analysts have since revised their consensus estimate to $28.5 billion. That means Nvidia’s own guidance might even be too conservative!

It’s no surprise, because Nvidia has made a habit of beating expectations. In the fiscal 2025 first quarter (ended April 28), the company delivered $26 billion in total revenue which was well above its original guidance of $24 billion, and also above Wall Street’s estimate of $24.6 billion.

The result was headlined by $22.6 billion in data center revenue alone, which represented a whopping 427% increase from the year-ago period.

That’s the number investors should watch in the upcoming Q2 report. Anything above Wall Street’s estimate of $25 billion will be a positive read-through for tech giants like Microsoft, Amazon, and Alphabet. It’s a direct reflection of their AI infrastructure spending, which represents their confidence in the technology going forward.

Nvidia, Microsoft, Amazon, and Alphabet account for 20.4% of the entire value of the S&P 500 index. Meta Platforms and Tesla, who are also big buyers of Nvidia’s GPUs, together account for another 3.8% of the index.

Therefore, this group of tech companies could influence the direction of the overall stock market going forward, which is why I think so much is hinging on Nvidia’s Aug. 28 report.

Image source: Nvidia.

Nvidia could be more important than the Fed over the next month

Interest rate cuts can be good for the stock market because they reduce the yield on risk-free assets like cash and Treasuries, pushing investors into growth assets like stocks and real estate instead. Plus, lower rates will allow companies to borrow more money to fuel growth, and companies with existing debt could see their repayments fall, which is a tailwind for their earnings.

However, history suggests the S&P 500 could suffer a temporary decline once the Fed starts cutting interest rates. In past instances, the Fed was cutting because of dire economic conditions — like the dotcom tech crash in 2000, the global financial crisis in 2008, and the COVID-19 pandemic in 2020. The S&P 500 fell on each occasion.

While there is no sign of an impending crisis in the U.S. economy right now, unemployment has ticked higher to 4.3% (from 3.7% in January), which is a sign there could be weakness on the horizon, especially in areas like consumer spending. If the economy does slow, that will hurt corporate earnings which could send the stock market lower, even while the Fed is slashing rates.

With that said, the CME Group‘s FedWatch tool assigns a 100% probability to a September rate cut, and since the economy is still quite strong, it shouldn’t trigger a negative response from investors.

For that reason, I attach far more weight to Nvidia’s upcoming earnings report on Aug. 28, because it genuinely has the potential to influence the direction of the market.

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