How Nvidia's Impressive Q3 Results Sparked Optimism That Quickly Collapsed

The Setup: Wednesday’s Afterglow Faded Fast

Investors who held Nvidia (NASDAQ: NVDA) and other AI stocks went to sleep Wednesday night riding high on expectations. The chipmaker’s phenomenal third-quarter earnings release after market close seemed like a green light for Thursday. In after-hours trading, the stock jumped about 5.1%, signaling investor confidence that momentum would carry into the next trading session.

But Thursday told a very different story.

The Morning Looked Promising

The day started exactly as optimists had hoped. When regular trading opened at 9:30 a.m. ET, Nvidia (NASDAQ: NVDA) was up 5.1% at the bell. The broader market caught the wave too—the S&P 500 climbed 1.4% and the tech-heavy Nasdaq Composite surged 2.2%. Everything pointed toward a celebratory day for growth stocks and AI investments.

By mid-morning, it looked like a lock.

The Afternoon Reversal: Green Turned Red

Then something shifted. The sea of green that dominated the morning session evaporated as traders reassessed their positions. By the afternoon close at 4:30 p.m., the picture had inverted completely.

Nvidia stock fell 3.2% from Wednesday’s close—a devastating 7.8% swing from its Thursday opening price. The S&P 500 declined 1.6% and the Nasdaq Composite dropped 2.2% on the day. The earnings-fueled rally had become a sell-off.

Why the Dramatic Shift?

Two primary factors drove this reversal:

Factor One: Federal Reserve Rate Cut Uncertainty

The most significant trigger was a renewed concern that the Federal Reserve would hold off on cutting interest rates in December. This anxiety crystallized when delayed September jobs reports hit Thursday morning, painting a mixed picture of U.S. labor market strength. Investors interpreted these employment figures as potentially forcing the Fed to maintain higher rates longer than previously expected, which is bearish for growth stocks and AI names.

Factor Two: Persistent Bubble Concerns

Despite Nvidia’s impressive quarterly results, AI bubble anxieties never fully disappeared. The recent revelation that hedge fund manager Michael Burry had taken bearish positions on AI stocks including Nvidia and Palantir in Q3 continued to haunt investors. While Nvidia’s strong earnings helped ease these concerns, it wasn’t enough to eliminate them entirely.

The market’s mood swung from “this proves AI is real” back to “but is it already overpriced?”

Understanding Nvidia’s Market Impact

It’s worth noting why Nvidia moves matter so much beyond the stock itself. As the largest AI company by market capitalization and a dominant supplier of graphics processing units (GPUs) to data centers, Nvidia (NASDAQ: NVDA) functions as a bellwether for the entire artificial intelligence sector. Its outsized importance stems from its control over the infrastructure enabling AI development.

Moreover, Nvidia is the most valuable company in the S&P 500, making it an indicator of the broader U.S. stock market health. When the AI leader stumbles—or when investor sentiment around it shifts—ripples spread across multiple asset classes.

The Lesson

Thursday’s dramatic reversal demonstrates how quickly market narratives can change, even after seemingly confirmatory data. Earnings that appeared excellent on Wednesday suddenly seemed insufficient by Thursday afternoon once macro concerns (interest rates) and structural doubts (bubble fears) reasserted themselves.