(Bloomberg) — An upbeat earnings report by Nvidia Corp. (NVDA) would bode well for a rally in US equities as investors have about $7 trillion parked in cash funds, according to BBVA strategists.

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Institutional positioning in the US technology sector is “undemanding” with hedge funds and mutual funds still substantially underweight, strategist Michalis Onisiforou said. Exposure of trend-following Commodity Trading Advisors (CTA) to the broader stock market is also neutral, while volatility control funds have plenty of room to add to risk, he said.

“With the institutional length in equities far from exuberance levels,” Onisiforou said the setup favors higher exposure to stocks.

The S&P 500 (^GSPC) had rallied since an April low on optimism around easing trade tensions, but the gauge fell last week on worries about the fiscal deficit and a resurgence in tariff tensions. Focus is now on Nvidia’s first-quarter earnings report, due Wednesday, as the $3.2 trillion stock is considered a bellwether for artificial intelligence demand.

While Nvidia’s shares have also rebounded about 40% in the past seven weeks, the stock is still about 14% below its January record high. With a price-to-earnings ratio of about 28, it trades well below its five-year average valuation of 40, according to data compiled by Bloomberg.

Still, Onisiforou warned the recent rally had left the stock near overbought levels, suggesting “a challenging backdrop for the earnings report.”

Demand from retail buyers — who consistently bought dips in US stocks this year — also briefly weakened before being revived by the debt downgrade by Moody’s Ratings (MCO), the strategist said.

—With assistance from Neil Campling.

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