Nvidia, the market’s darling in the field of artificial intelligence, has achieved a remarkable valuation of $1 trillion. Its first-quarter results exceeded sales and earnings expectations, propelling the company to new heights. As we eagerly await the second-quarter numbers, the burning question is where Nvidia’s stock will head next.
The Anticipated Move
Based on options markets, it appears that Nvidia stock (ticker: NVDA) could experience a significant shift of approximately 10% following the earnings announcement.
Options markets play a valuable role in guiding investors. By examining stock-options prices that are aligned with the earnings date, we arrive at the estimated 10% figure.
Call options grant the owner the right to purchase Nvidia stock at a predetermined price, known as the strike price, within a specified timeframe. Conversely, put options enable the right to sell. Currently, Nvidia call and put options with a strike price of $457.50 (close to the current stock price) and an expiration date of August 25 are being traded at around $25 each.
With this in mind, a trader can engage in transactions involving Nvidia stock for only $50. However, for the trade to yield a profit, the stock must move by at least $50 between now and August 25. Consequently, if the stock remains relatively stagnant, the trader will incur losses amounting to approximately 11%.
This calculation provides a swift overview. A more precise analysis involves intricate computations considering factors like the disparity between the stock price and the option strike price, as well as the timing of earnings and expiration.
In any case, one thing is clear: investors are braced for volatility. This expectation is well-founded considering that Nvidia’s stock has surged by 50% since it reported its first-quarter numbers in late May. Furthermore, the shares experienced a 24% increase on the day following the earnings report, during which Nvidia’s management projected second-quarter sales of approximately $11 billion, surpassing the Street’s estimate of around $7 billion.
Nvidia Stock Earnings: What Traders Need to Know
Traders who engage in the option trade of Nvidia stock have a unique advantage – they don’t worry about whether the stock will go up or down after earnings. Investors, on the other hand, prefer upward movement. However, for the stock to continue rising, it will likely require another impressive performance and better-than-expected guidance.
Wall Street analysts are projecting second-quarter sales of $11.2 billion, followed by an expected increase to $12.6 billion in the third quarter. These figures provide insight into the company’s financial health but don’t necessarily reveal where the stock price will go following the earnings announcement.
According to CappThesis founder Frank Cappelleri, if the earnings report is deemed satisfactory by bullish investors, we can expect Nvidia’s stock to surpass $480. Notably, the stock reached its record intraday high of $481.87 after the first-quarter earnings release. Conversely, a particularly negative report may push the stock below $400, potentially even toward $300.
The significance of the $400 mark stems from Nvidia’s rapid surge from $300 to $400 during a brief period. That sharp increase created a gap, known as the “May earnings-induced gap.” Interestingly, this gap was never challenged by downward movement in subsequent trading sessions, which is uncommon. Although stocks sometimes fill in such gaps, Nvidia has yet to do so. However, if a significant disappointment occurs, it could prompt such a correction.
It’s important to note that Cappelleri’s analysis is purely technical in nature as he relies on charts to gauge investor sentiment. He emphasizes that he isn’t predicting earnings reactions but rather providing key levels for observation. Interestingly, he believes that support and resistance levels may not be particularly relevant on the day of the earnings announcement.
Cappelleri and a select group of individuals will closely monitor Nvidia’s earnings report and subsequent stock reaction. This information will offer valuable insights into the market’s perception of Nvidia’s performance.