Another blockbuster quarter from Nvidia Corp (NASDAQ:NVDA) is making waves in the ETF space once again, but this time, the stakes feel bigger.
With revenue growth of 73% year-over-year and data center sales increasing by 75%, the performance only reinforced Nvidia's dominance in the AI trade. Networking revenue growth of 263% was a clear indication that the AI infrastructure build-out is no longer just about GPUs.
Jake Behan, Head of Capital Markets at Direxion, called the report "the quarterly reaffirmation of the health of the AI trade," adding that few events carry enough weight to potentially push the S&P 500 above 7,000. Nvidia earnings, he said, have "extensive ripple effects" across hyperscalers, semiconductors, software and major indexes.
ETFs In Focus: Semis And Beyond
While semiconductor ETFs including VanEck Semiconductor ETF (NASDAQ:SMH) and iShares Semiconductor ETF (NASDAQ:SOXX) remain the obvious beneficiaries, Nvidia's explosive networking growth signals a second-wave opportunity.
Sales of NVLink and Spectrum-X systems show that AI infrastructure spending is expanding beyond GPUs into high-speed interconnect and rack-scale architecture. That widens the ETF lens toward broader tech and infrastructure exposure such as Invesco QQQ Trust (NASDAQ:QQQ) and iShares U.S. Technology ETF (NYSE:IYW).
Behan noted that Nvidia's earnings have "extensive ripple effects that impact hyperscalers, semiconductor companies, struggling software names, the NDX, SPX, and the list goes on." With hyperscalers accounting for over half of data center revenue, the capex cycle remains central to the AI trade.
Notably, Nvidia's guidance topped estimates despite excluding China data center revenue. According to Lee, that suggests meaningful upside remains if geopolitical tensions ease. "With all things AI, there is a strong narrative that the market demands perfection," he said. Yet Nvidia is trading at its lowest multiples since mid-2020, potentially adding fuel to a market that has stalled early this year.
Still, expectations were high. Nvidia options implied a relatively muted +/- 5.1% move post-earnings. According to Behan, that suggests optimism is already priced in amid massive capex forecasts, but traders are still demanding proof that spending is translating into monetization. "The AI trade has transitioned from hype to scrutiny," he said, adding that Nvidia now serves as the key metric for that shift.
Ryan Lee, the Senior Vice President of Product and Strategy at Direxion, said that the exact thing the market needed to hear was CEO Jensen Huang's statement that computing demand is "rising exponentially."
The adoption of AI agents in the enterprise and the spending of hyperscalers are tailwinds for semiconductors, said Lee. However, the same factors also suggest high capex and disruption in traditional software, which are headwinds for the rest of the market.
"As the largest company in the world continues to drive the AI trade forward with today's beat, traders can look to Direxion Daily NVDA Bull 2X Shares (NASDAQ:NVDU) for 2X daily exposure to magnify potential upside when trading the semiconductor giant,” Lee said.
Client Concentration
But Nvidia's earnings also point to hyperscaler concentration, as more than 50% of data center sales came from this group. Lee pointed out the revenue concentration but said these clients have fortress balance sheets. Meanwhile, enterprise agentic AI adoption may slowly begin to diversify demand.
“Hyperscalers were over 50% of 4Q data center revenue, showing both the extreme level of capex from the hyperscalers and just how concentrated Nvidia's revenue can be in the core business. That said, there are worse things than client concentration coming from companies with fortress balance sheets. The narrative around enterprise adoption of agentic AI shows this is beginning to diversify,” he explained.
For a broader play, investors may consider QQQ or equal-weight strategies like Direxion NASDAQ-100 Equal Weighted Index Shares (NASDAQ:QQQE) to mitigate megacap concentration risk.
Currently, Nvidia seems to be firmly in control of the economics of the AI trade. The larger question for ETF investors: Is this just another beat, or is this the spark that sends the market into its next leg higher?
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