In a week that encompasses the release of FOMC meeting minutes, speeches from seven Fed officials, and the unveiling of PMI data, Nvidia’s earnings announcement stands out as the most eagerly awaited event.
Given Nvidia’s pivotal position in the technology sector and its impact on market trends, the significance of Wednesday’s earnings disclosure is not surprising. Nvidia’s stock price has surged by 46.6% in 2024, building upon its remarkable 238% increase in 2023. Nvidia epitomizes the fervor surrounding artificial intelligence, with soaring demand for its AI chips prompting investors to seek robust revenue and profit figures to rationalize the soaring valuations.
The Wall Street consensus projects an adjusted Q4 EPS of \(4.60 per share, marking a remarkable surge of over 700% from 65 cents a year earlier. Anticipated Q4 revenue stands at \)20.43 billion. Any shortfall in earnings or a downward revision in future guidance could trigger a wave of profit-taking in the technology sector, potentially impacting the broader market. Conversely, an earnings report surpassing expectations could fuel upward momentum and attract more investors gripped by FOMO due to the stock’s dazzling performance.
Earnings-related volatility is not unfamiliar territory for Nvidia. In the past, the stock experienced a 14% surge last February when it outperformed profit and revenue forecasts, followed by a 24% leap in May after another stellar performance. Option markets are bracing for another substantial potential uptick on Wednesday, as indicated by the elevated level of call skew. Call “skew” reflects the demand for high-strike calls compared to at-the-money bullish bets. The current call skew is approaching a record high.
To contextualize the implied volatility level, Nvidia closed slightly above \(725 per share in the latest trading session. Option straddles expiring on February 23rd, two days after the earnings release, are priced at approximately \)80. This implies that for a trader to break even on the trade, the stock would need to either surpass \(805 or dip below \)645, representing an 11% swing in either direction—a substantial expected movement.
With a valuation of \(1.8 trillion, Nvidia now ranks as the 3rd largest stock in the S&P 500 and the Nasdaq, surpassing market giants like Amazon (AMZN) and Google in market capitalization. An 11% fluctuation in the stock price equates to over \)200 billion, exceeding the entire market cap of numerous prominent S&P 500 companies such as Disney, AT&T, Pfizer (PFE), or IBM. The potential market value shift resulting from Nvidia’s earnings announcement is truly remarkable.
Much of the recent stock market upsurge has been underpinned by expectations surrounding AI and the envisioned productivity gains from its widespread adoption. Nvidia’s earnings and future guidance could act as a litmus test for the AI sector, either validating its lofty valuation or tempering its meteoric ascent. Investors and market analysts are on tenterhooks, eagerly awaiting the disclosure. The stakes are high, and the global audience is closely monitoring the outcome.
