Nvidia Earnings Anticipate 8.7% Swing, $200B Impact

Quick Look:

Anticipated Share Movement: Nvidia’s options suggest an 8.7% share swing post-earnings, potentially impacting market capitalisation by about $200 billion.
Volatility Expectations: Current expectations are more tempered compared to the previous quarter’s 16.4% surge; the average implied move over the last eight quarters is around 12%.
AI Industry Impact: Nvidia’s shares are up 87% this year; the company is crucial in the AI sector, contributing significantly to the S&P 500’s earnings growth.

As Nvidia gears up to report its earnings on Wednesday, traders are preparing for a significant move in the chipmaker’s shares. U.S. options markets reveal that while expectations for volatility are substantial, they are not as heightened as in previous quarters. Despite the muted outlook, the potential market impact remains noteworthy, given Nvidia’s standing in the burgeoning AI sector.

Nvidia’s Expected Share Movement

According to data from options analytics firm Trade Alert, Nvidia’s options suggest an 8.7% swing in either direction by Friday. This anticipated movement could equate to a market capitalisation shift of approximately $200 billion, a figure that surpasses the market cap of nearly 90% of the companies in the S&P 500. Although this predicted volatility is significant, it pales in comparison to the 16.4% surge Nvidia experienced following its last quarterly earnings report. Over the past eight quarters, the average implied move has been around 12%.

Chris Murphy, co-head of derivative strategy at Susquehanna Financial Group, noted, “Volatility and expectations had been a fair amount higher the last time around.” This tempered expectation reflects a broader market sentiment that, while still positive, is slightly more cautious than before.

Nvidia: A Bellwether for the AI Industry

Nvidia’s impressive performance this year, with shares up approximately 87%, underscores its pivotal role in the AI industry. With a market value nearing $2.3 trillion, Nvidia is the third-largest company on Wall Street, trailing only Microsoft and Apple. The company’s forthcoming earnings report is highly anticipated, with Wall Street betting on another stellar performance. Investor interest has also expanded to other sectors benefiting from AI advancements, including power, commodities, and utilities.

BofA strategists, including Gonzalo Asis, highlighted this broader impact in a recent note, stating, “AI benefits are broadening out to power, commodities, and utilities. It’s not just about NVDA anymore.” This shift reflects a growing recognition of the widespread influence of AI technologies across various industries. BofA’s strategists project that Nvidia will contribute 9% to the S&P 500’s earnings growth over the next 12 months, a decline from the 37% contribution over the past year.

Balancing Expectations and Potential

Despite the tempered volatility expectations, the upcoming earnings report is still expected to be a significant event for Nvidia’s share price. Matt Amberson, founder of options analytics service ORATS, pointed out that implied volatility for out-of-the-money calls is roughly equal to that for out-of-the-money puts. This parity suggests that options traders are not discounting the potential for further gains. This is true even with the stock’s substantial year-to-date increase. “Traders expect up moves to be as violent as down moves,” Amberson remarked. This indicates a balanced outlook on future price movements.

Nvidia should report earnings of $5.59 per share. Additionally, quarterly revenue is expected to rise to $24.65 billion, a significant increase from $7.19 billion a year ago, according to LSEG data. The anticipation surrounding Nvidia’s earnings is palpable. It not only impacts the company’s stock but also influences broader market sentiments.

Moreover, European stock futures have declined alongside Asian equities as investors shift their focus to Nvidia’s earnings. Contracts for the Euro Stoxx 50 fell. In contrast, U.S. futures presented a mixed picture. Meanwhile, futures on 10-year U.S. Treasuries steadied. At the same time, gold and copper traded near their all-time highs, and wheat prices surged.

The expected volatility for Nvidia’s shares post-earnings is less dramatic than in previous quarters. However, the potential market impact remains significant. Traders and investors alike are closely monitoring the situation, with Nvidia’s performance likely to have far-reaching implications across the financial markets.

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