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Friday, February 7, 2025

Nvidia’s Earnings: Will QQQ and the S&P 500 Feel the Shockwaves?

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Nvidia’s Earnings: A Potential Earthquake for the Stock Market

Investors and speculators are holding their breath as Nvidia Corp. (NVDA) prepares to release its earnings report. This isn’t just another quarterly update; the options market suggests Nvidia’s results could trigger massive swings in the S&P 500 (SPY), potentially exceeding the market reactions typically seen after major economic data releases like the employment and inflation reports. Nvidia’s dominance in the AI sector has made its performance a key indicator of overall market sentiment, amplifying its influence on the broader financial landscape. The company’s remarkable performance in the past year—accounting for a staggering 20% of the S&P 500’s total returns—underscores this significant influence. Whether Nvidia surpasses or falls short of expectations, the consequences will reverberate far beyond its own stock price.

Key Takeaways: Why Nvidia Matters

  • Market-Moving Potential: Nvidia’s earnings are poised to cause significant volatility in the stock market, potentially exceeding the impact of key economic data releases.
  • AI Dominance: Nvidia’s leading role in the AI sector has transformed its earnings announcements into barometers of overall market sentiment.
  • High Stakes: The options market predicts a substantial move in the S&P 500 following the report, highlighting the high stakes involved.
  • Hedging Strategies: Financial analysts are suggesting hedging strategies for investors concerned about potential market turbulence.
  • Historical Performance: Examining Nvidia’s past earnings reports reveals a pattern of significant price swings following the announcements.

The S&P 500’s Implied Move: Bigger Than Inflation or Jobs Data

The options market is forecasting a potential 1.05% move in the S&P 500 following Nvidia’s earnings report. This is a remarkably high prediction, exceeding the expected market reaction to the upcoming Non-Farm Payroll (NFP) data and Consumer Price Index (CPI) reports, and aligning with the anticipated impact of the Federal Reserve’s December meeting. This suggests that investors view Nvidia’s earnings as a more significant potential catalyst for market movement than even these crucial economic indicators. “Options are assigning more broad-market risk around NVDA earnings than around next month’s NFP and CPI days, and as much as the Dec FOMC,” stated Bank of America’s derivatives analyst, Gonzalo Asis. The implied one-day move for Nvidia shares themselves is even more dramatic, at a projected 12.5%.

Given the significant potential for market volatility, the need for hedging strategies is undeniable. Bank of America recommends employing put spreads on the Nasdaq-100 ETF (QQQ) as a way to hedge against broader market risks linked to Nvidia’s performance. Specifically, the analyst recommends utilizing QQQ 22Nov 490-480 put spreads which are priced at $2, offering a potential 5x payout if the Nasdaq-100 drops by approximately 3.3% this week.

However, direct hedging of NVDA earnings itself is deemed expensive, considering the stock’s significant historical reactions to earnings announcements. “We remain cautious of fragility risks in single names around earnings, but NVDA hedges themselves are not particularly cheap relative to how much the stock has reacted to results in the last two years,” Asis cautioned, highlighting the challenges in mitigating risk in the face of Nvidia’s already high volatility.

Nvidia’s Historic Earnings Performance: A Pattern of Volatility

An analysis of Nvidia’s earnings data over the past 12 quarters reveals a consistent pattern of significant post-earnings price movements. Nvidia has exceeded earnings-per-share (EPS) expectations in 10 out of those 12 quarters, missing revenue expectations only once. On average, Nvidia shares have moved 5.3% on the single trading day immediately following an earnings announcement — a substantial swing highlighting the substantial reaction investors have to the reported results.

Extreme Swings: A Closer Look at the Data

The data demonstrates a wide range of potential outcomes. The largest single-day gain of 24.4% followed the first-quarter 2024 earnings report, illustrating the upside potential. Conversely, the worst reaction, a 7.6% decline, occurred after the fourth-quarter 2024 results, showcasing the substantial downside risk. This underscores the unpredictable nature of the market’s response to Nvidia’s earnings announcements. The volatility is remarkable, further emphasizing the heightened attention surrounding this particular release. This significant volatility presents both opportunities and significant challenges for investors.

The following table details Nvidia’s recent earnings performance, offering a clear picture of the historical data’s implications:

Fiscal QuarterDate AnnouncedSurprise % EPSSurprise % Revenue1-Day % NVDA Move
Q2-20258/28/246.25%4.73%-6.38%
Q1-20255/22/242.86%5.66%9.32%
Q4-20242/21/2411.45%7.19%16.40%
Q3-202411/21/2319.64%12.39%-2.46%
Q2-20248/23/2329.19%20.38%0.10%
Q1-20245/24/2318.48%10.31%24.37%
Q4-20232/22/238.64%0.68%14.02%
Q3-202311/16/22-15.94%2.79%-1.46%
Q2-20238/24/22-59.20%-17.23%4.01%
Q1-20235/25/225.43%2.07%5.16%
Q4-20222/16/228.20%3.01%-7.56%
Q3-202211/17/216.36%4.00%8.25%

Data: Benzinga Pro

The upcoming Nvidia earnings report is clearly more than just a corporate event; it’s a potential market-moving catalyst with far-reaching consequences. Investors and traders alike are advised to carefully consider the implications and potential risks involved before making any investment decisions.

Article Reference

Lisa Morgan
Lisa Morgan
Lisa Morgan covers the latest developments in technology, from groundbreaking innovations to industry trends.

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