By Saqib Iqbal Ahmed
NEW YORK (Reuters) – Traders expect Nvidia shares to rise sharply after the chipmaker reports earnings on Wednesday, although expectations for volatility are more muted than in the past, markets showed American options.
Nvidia’s options are expected to move 8.7% in either direction by Friday, according to data from options analytics firm Trade Alert. This would translate into a change in market capitalization of $200 billion, which is greater than the market capitalization of approximately 90% of S&P 500 companies.
While massive by most measures, this implied move would fall well short of the 16.4% jump Nvidia shares saw after the company’s last quarterly earnings report. It’s also less aggressive than the average 12% move traders had priced in over the past eight quarters.
“Volatility and expectations were much higher last time,” said Chris Murphy, co-head of derivative strategy at Susquehanna Financial Group.
Nvidia, up about 87% this year, is considered a barometer of the booming AI sector and has a market value of about $2.3 trillion, making it the third-largest company in Wall Street, behind Microsoft and Apple. Wall Street is betting on a stellar quarterly report from Nvidia.
Investor interest has extended to other beneficiaries of the AI theme in recent months.
“The benefits of AI extend to energy, commodities and utilities,” BofA strategists including Gonzalo Asis wrote Monday. “It’s not just about NVDA anymore.”
BofA strategists expect the company to generate 9% of the S&P 500’s earnings growth over the next 12 months, up from 37% over the past 12 months.
That’s not to say the next earnings report should be uneventful for the company’s stock price.
Matt Amberson, founder of options analysis service ORATS, noted that the implied volatility of out-of-the-money calls is roughly equal to that of out-of-the-money puts. This suggests that options traders are not ruling out the possibility of further upside for the stock, despite its already strong year-to-date gains.
“Traders expect upward movements to be as violent as downward movements,” Amberson said.
Nvidia is expected to post earnings of $5.59 per share and an increase in quarterly revenue to $24.65 billion from $7.19 billion a year ago, according to LSEG data.
Steve Sosnick, chief strategist at Interactive Brokers, said an Nvidia slowdown could test investors’ resolve regarding the broader AI business.
“Yes, the rally has broadened, but I’m not sure how strong it would be if Nvidia sold hard,” he said.
“A lot of issues hinge on the business of AI,” Sosnick said.
(Reporting by Saqib Iqbal Ahmed; editing by Ira Iosebashvili and Lincoln Feast.)
