Nvidia, the market’s leading artificial intelligence (AI) company, has achieved an impressive milestone with a valuation exceeding $1 trillion. This remarkable feat comes on the heels of surpassing sales and earnings expectations in the first quarter, heightening anticipation for the release of second-quarter numbers this week.
Anticipating the Next Move
Intriguingly, options markets suggest that Nvidia’s stock (ticker: NVDA) could experience a significant movement of approximately 10% following the earnings announcement. These markets serve as a valuable tool for investors, granting insights into potential stock-price fluctuations.
To arrive at the estimated 10% figure, one can examine the prices of stock options that expire close to the earnings date. Call options provide the holder with the right to purchase Nvidia shares at a predetermined price (also known as the strike price) before a specified date, while put options grant the right to sell. Currently, Nvidia call and put options with a strike price of $457.50—reflecting the stock’s value on Wednesday—are available for approximately $25 each, totalling $50 for either buying or selling shares. For this transaction to yield a profit, Nvidia’s stock must move by at least $50 before August 25. In essence, this implies an approximate 11% fluctuation.
(It is essential to note that earnings will be the most significant upcoming event affecting these dynamics.)
Expectation of Volatility
Considering these calculations, it becomes clear that investors are bracing themselves for volatility in Nvidia’s stock performance. Such an expectation is indeed well-founded. Since reporting first-quarter results in late May, Nvidia’s shares have surged by an impressive 50%. Moreover, the day following the earnings report, share prices soared by 24%. During this announcement, Nvidia’s management projected second-quarter sales to reach around $11 billion, significantly surpassing the Street’s estimate of approximately $7 billion.
Undoubtedly, Nvidia’s growth trajectory continues to accelerate, with market-watchers eagerly anticipating the company’s forthcoming second-quarter results as they attempt to predict the stock’s next move.
NVIDIA’s Earnings Report: What to Expect
Traders who engage in option trading for NVIDIA don’t necessarily care if the stock goes up or down following the release of earnings. However, investors typically prefer to see the stock rise. In order to maintain a positive trajectory, it will likely require another impressive performance accompanied by better-than-expected guidance. Analysts on Wall Street are projecting second-quarter sales of $11.2 billion, with third-quarter sales estimated to reach $12.6 billion.
The real question is where the stock will go if NVIDIA manages to surpass expectations once again. According to Frank Cappelleri, the founder of CappThesis, a quarter that satisfies the bullish sentiment could push the stock price above $480. Notably, Nvidia’s stock reached a record intraday high of $481.87 after the release of its first-quarter earnings. However, if the numbers disappoint, shares might drop below $400 and potentially even trend toward $300.
The reasoning behind the $400 mark stems from a significant surge in Nvidia’s stock which quickly propelled it from $300 to $400. As Cappelleri points out, the gap formed during this earnings-induced climb remained unchallenged thus far. While stocks that experience sharp rises or drops often see subsequent trading fill in the gap, Nvidia has yet to demonstrate such behavior. Although it remains a possibility, it would likely require a substantial disappointment to trigger that outcome.
It’s important to note that Cappelleri’s analysis is primarily technical rather than fundamental. By examining charts, he aims to gain insight into investor sentiment and behavior. He emphasizes that these levels are simply “things to watch,” asserting that support and resistance levels hold little significance on days like today.
Cappelleri, alongside other keen observers, will be closely monitoring Nvidia’s earnings report and subsequent stock reaction. The anticipation is high, and the stakes even higher.