When a stock is priced for perfection, any deviation from expected performance can cause a sharply negative market reaction. A stumble turns into a faceplant.

In the richly valued technology sector, investors have baked in expectations of continuous, robust growth, especially for the mega-cap “story stocks.”

However, if a priced-for-perfection company reports earnings or guidance that even slightly misses these high expectations, it can result in a sell-off. The market’s reaction is magnified because the high valuation leaves little cushion for negative news.

High valuations can create psychological pressure. Investors may perceive that stocks are overvalued and more prone to a correction. If bad news emerges, panic selling may ensue. This herd mentality has been especially prevalent among the “Magnificent Seven” tech giants during second-quarter earnings season.

All of which brings me to the earnings releases this week of “Magnificent Seven” member Nvidia (NSDQ: NVDA) and Dow 30 component Salesforce (NYSE: CRM).

Performance vs. expectations…

Chipmaking giant Nvidia and software maker Salesforce are two tech bellwethers that released operating results after the market closed Wednesday.

The response of investors exemplified the good-but-not-good-enough syndrome. Despite strong results, the share prices of both companies dropped Thursday.

Read This Story: When Good Isn’t Good Enough: The Paradox of Wall Street Expectations

Anticipation on Wall Street was sky-high ahead of Nvidia’s fiscal 2025 second-quarter earnings report. Nvidia achieved triple-digit profit growth, surpassing expectations for both revenue and earnings, fueled by robust ongoing demand for AI. The company’s forecast also was above expectations.

However, in the context of NVDA’s exponential share price gains, it still wasn’t sufficient for Wall Street.

The soaring demand for AI has sent Nvidia’s stock to the moon. The stock has surged over 150% year-to-date and more than 750% since the rapid adoption of AI began in earnest early last year.

In recent weeks, many analysts have expressed concern that Nvidia’s rapid ascent may have gone too far, too fast.

The most valuable company in the world is Apple (NSDQ: AAPL) with a market cap of $3.4 trillion, followed by Nvidia at $2.9 trillion (numbers as of market close August 29). As Nvidia’s value has grown, the company has become one of the world’s most important stocks, which puts a very bright spotlight on its quarterly performances.

During the second quarter, Nvidia reported record revenue of $30 billion, marking a 122% increase year-over-year and a 15% rise quarter-over-quarter. This translated to adjusted earnings per share (EPS) of $0.68. The results significantly outperformed analysts’ consensus estimates of $28.6 billion in revenue and $0.64 EPS, and also exceeded Nvidia’s own guidance of $28 billion in revenue.

The standout performer was Nvidia’s data center segment, which encompasses AI-focused chips. Revenue in this segment hit $26.3 billion, a 154% jump year-over-year and a 16% sequential increase, driven by strong AI adoption from cloud computing providers and hyperscale data center operators.

CEO Jensen Huang emphasized the strong demand for Nvidia’s current Hopper chip, and described the anticipation for its next-generation Blackwell architecture as “incredible.”

While there were media reports speculating that the new Blackwell chips could be delayed by up to three months due to design issues, the company alleviated those concerns in its earnings statement:

“We shipped customer samples of our Blackwell architecture in the second quarter. We implemented a modification to the Blackwell GPU mask to enhance production yield. The production ramp for Blackwell is set to begin in the fourth quarter and extend into fiscal 2026.”

It’s clear that Nvidia delivered a pretty darn good report card, as the following chart shows:

The nerve-wracking part for Wall Street is that Nvidia’s earnings releases have become make-or-break events for stock market momentum.

In the coming days, we’ll see how The Street digests the latest news surrounding NVDA and whether broader sentiment is adversely affected. I suspect cooler heads will eventually prevail.

Salesforce also reported Q2 fiscal 2025 operating results after the closing bell Wednesday and, as with Nvidia, the company beat on the top and bottom lines.

Salesforce reported EPS of $2.56 versus $2.36 expected and revenue of $9.33 billion vs. $9.23 billion expected.

Expectations and share price performance haven’t been as lofty for Salesforce as they have been for Nvidia. That said, CRM shares also sank in the aftermath of its earnings release, due to worries about the sustainability of the AI boom.

Inflation remains under control…

A tailwind for the tech sector is falling inflation and we just got favorable numbers on that score.

The U.S. Bureau of Economic Analysis reported Friday that the personal consumption expenditures (PCE) price index in July rose 0.2% month-over-month and 2.5% year-over-year. Both numbers were in line with consensus estimates.

Excluding volatile food and energy costs, the “core” PCE also showed a 0.2% uptick for the month. This measure posted a 2.6% increase on a year-over-year basis, slightly lower than analyst projections of a 2.7% gain.

The year-over-year increases in both core and headline PCE were the same as occurred in June. The PCE is the Federal Reserve’s favorite inflation gauge.

The latest PCE data underscores that an interest rate cut is nearly assured when the Fed next meets September 17-18.

In the meantime, the main U.S. stock market indices closed higher Friday as follows:

• DJIA: +0.55%
• S&P 500: +1.01%
• NASDAQ: +1.13%
• Russell 2000: +0.67%

NVDA mounted a partial comeback Friday, as investors bought on the dip. NVDA fell 6.38% on Thursday and closed up by 1.51% Friday. But Salesforce extended its slide. CRM fell 0.73% on Thursday and fell another 1.60% Friday.

For investors, the key takeaway from these temporary gyrations is this: Stay focused on the long-term picture.

Consider the fact that the S&P 500 closed out its fourth straight winning month on Friday, ending August with a 2.3% gain for the month. The index is now up 18.4% so far this year.

While short-term price movements can be influenced by sentiment, expectations, and speculative behavior, the long-term success of companies will be determined by their ability to generate consistent cash flows, expand their market presence, and innovate. In the AI sector, the long-term potential is undeniable.

The green rush…

In the above article, I conducted a deep dive into the technology sector. Now, I want to focus on a different industry: marijuana.

That’s right…marijuana. Weed is no longer a pariah and counter-cultural act of rebellion. It’s a multibillion-dollar bonanza. Investors who ignore pot stocks will miss out on huge, market-thumping gains.

Through painstaking research, my colleague Jim Pearce has discovered that a small group of everyday Americans are earning up to $51,338 a year from one company’s lucrative marijuana profit-sharing “plan.”

Jim is the chief investment strategist of our flagship publication, Personal Finance. He tells me that this particular company is the biggest win-win opportunity he’s ever seen in the marijuana market.

There’s one step you must take to qualify for the next round of payouts. To learn more, click here now.

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John Persinos is the editorial director of Investing Daily.

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