By Adam Levine

On Thursday morning, I woke up to an inbox full of analyst notes praising another great quarter from the artificial-intelligence chip leader, Nvidia, which had reported its fiscal fourth-quarter earnings the previous afternoon.

"Acceleration at a Scale Never Seen" was the title of Melius Research analyst Ben Reitzes' note.

"Generational growth at inspirational valuation," said Vivek Arya of Bank of America.

The laudatory missives multiplied.

Meanwhile, the stock fell by 5.5% on Thursday. Despite strong results and the accelerating 2026 AI data-center buildout -- of which Nvidia remains the primary beneficiary -- the stock has been stuck in the mud for months. Since October, it has moved sideways, down about 1%, while the S&P 500 index rose by 3.3%. And despite beating earnings expectations 13 quarters in a row, the stock declined the next day by an average of 3% after the last three of them.

Negative narratives have crept in:

-- Growth deceleration. This once seemed like a real concern. Year-over-year sales growth peaked at 265% in the fourth quarter of fiscal 2024, and it declined through the second quarter of 2026. But the growth rate turned back up in the second half of the fiscal year, and Nvidia's guidance was for more acceleration in the current quarter. This narrative is on life support.

-- Competition. Nvidia's largest customers, the "hyperscalers," are looking to diversify their supply chains and not be so dependent on Nvidia. Meta Platforms just signed a deal with Advanced Micro Devices for its AI chips. The three big cloud providers -- Amazon.com, Microsoft, and Alphabet -- all make their own custom chips they would like customers to use, and there are many chip start-ups. Alphabet is getting the most traction so far. Nvidia has a deal with start-up Groq for its AI chips.

-- Risky commitments. To deal with supply-chain shortages, Nvidia has committed to $95 billion of inventory purchases, almost all of which will be spent this year. In all of fiscal 2026, Nvidia had $62 billion in cost-of-goods-sold, so this is a major supply commitment, and some of these orders may not be cancelable. A year from now, this will either look like a genius move that kept Nvidia's industry-leading gross profit margin high or a disastrous example of hubris that destroyed its gross margin.

-- Limitations of the data-center boom. Nvidia's main vendors are seeing tight supply. Land, skilled construction crews, and power are becoming harder to come by. The hyperscaler customers have given sky-high guidance for 2026 capital expenditures, but how long can that last? They have substantial cash flow of their own, but they are reaching the limits of it with their even larger capital budgets. They are already dipping into debt. How much will investors stomach?

-- Circular financing. Nvidia had over $100 billion in operational cash flow last year, and it has been spreading that wealth around throughout the AI start-up ecosystem. In fiscal 2026 it made $17.5 billion in start-up equity investments, and another $13 billion to Groq -- and it has commitments for another $11.4 billion this year. On Friday, Nvidia invested $30 billion in OpenAI. Many of these companies are Nvidia customers, or customers of customers, and a good portion of those investments will wind up in Nvidia's pockets. These are big numbers, but they pale in comparison to Nvidia's sales: $216 billion in fiscal 2026 and a projected $350 billion this year. Nvidia is supporting the ecosystem, not the other way around, and in the process it is taking a stake in a range of AI start-ups.

Nothing seemed to change this week for Nvidia, but there was some light at the end of the tunnel for enterprise software makers, and they're hoping it's not a train headed their way.

These stocks hit the bricks at the end of last year, and this year they have been getting demolished. The iShares Expanded Tech-Software Sector exchange-traded fund was down 27% through this past Monday.

But then one of their tormentors became a patron saint.

Much of the stocks' woes were attributable to AI start-up Anthropic's agent software. Agents use language models like Anthropic's Claude to accomplish a complex series of tasks from simple conversational prompts, which led to fears that business software is replaceable by AI. On Feb. 5, Anthropic released tools for specific agent tasks in several areas like legal and finance. The software ETF capped eight straight trading days of declines with a 5% drop in what felt like capitulation.

But on Tuesday, Anthropic gave a presentation aimed at increasing AI adoption among business customers, something that's been slow going. The demonstration was all about how Anthropic's agents work...with software. Only four minutes into the hourlong show, Anthropic presenters began bragging about how much enterprise software from Microsoft, Salesforce, Google, Docusign, and others works with Claude agents. The company also announced a new integration with Intuit's financial software the same day.

"Anthropic wants to partner with Intuit, not kill Intuit. They want to partner with Salesforce. They don't want to replace Salesforce," said Jefferies analyst Brent Thill in a Barron's Q&A this week. "They're not going to replace some of these systems that we use. They will make them better. There's no doubt they will create new applications that potentially can compete. But we think it's more of a partnership than a full eviction of everyone in the software city."

And software stocks did turn on the Anthropic demonstration. The software ETF rose three days running, up 7.4% in all. But I'm not ready to call the bottom yet. Sentiment around the sector remains on a hair trigger, and it won't take much to knock it back down, like a fictional Substack post on Monday that sent the software ETF down 4.8%.

On Friday, the mood turned again, and the software ETF was down 2% in midday trading.

Write to Adam Levine at adam.levine@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

February 27, 2026 12:34 ET (17:34 GMT)

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