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Chip stocks are down 3% since the election. Meanwhile, the S&P 500 (^GSPC) is up about the same amount.

Semiconductors, once the mainstay of this two-year bull market, have been a net drag on U.S. stocks over the past four months.

Nvidia’s (NVDA) earnings — which come after the bell on Wednesday — will provide a reality check on how important the AI ​​poster child (and its cousins) are to this rally.

Tom Essaye, founder and president of the Sevens Report, recently joined Yahoo Finance and outlined the key elements traders are looking for in Wednesday’s Nvidia earnings.

“It’s all about the guidance. How enthusiastic and how aggressive (Nvidia is) on the guidance,” Essaye said. “It’s a growth story here. We all know it. It’s the future. It’s the next big thing. They need to keep us excited about it through this profit print.”

Nvidia has staged a strong comeback since its July slump, rising 45% from its August low. Chip stocks — up nearly 200% this year and more than 1,100% in the past two years — reached record highs after the election.

But many of Nvidia’s competitors, especially the smaller ones, have become a net drag on the sector, and US stocks have risen sharply since the start of the second half of the year.

The worst performing among this group of chip stocks, Super Micro Computer (SMCI), is facing idiosyncratic problems as it struggles to avoid a delisting from the Nasdaq stock exchange. Qorvo (QRVO) is down over 40%, as is Mobileye Global (MBLY) in the second half of the year to date.

Meanwhile, Intel (INTC), Micron (MU), KLA Corp (KLAC), Applied Materials (AMAT) and Microchip (MCHP) are all down more than 20%. Advanced Micro Devices (AMD) – seen as Nvidia’s biggest competitor – is down 14%.

The PHLX Semiconductor Index (^SOX), which tracks chip industry stocks, has been fluctuating for several months. And a new two-month low this week on Monday made some technical traders nervous.

To be fair, the US rally in the third and fourth quarters has already broadened the impact of chip stocks, and that will likely continue next year, as Josh Schafer wrote on Monday.

“Nvidia is not the full market driver that it was earlier (in the rally) for example,” Essaye said.

Since the second quarter, technology (XLK) has been the second-worst performing sector after healthcare (XLV) and is barely in positive territory. Accordingly, investors might wonder whether this bull market can continue if technology suddenly becomes an anchor for the S&P 500. And should Nvidia — “priced to perfection” according to many analysts — underperform and disappoint, investors could face that reckoning .

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