(Bloomberg) — Now Nvidia Corp. will report an unusually complex quarter as the world’s most valuable company, traders are preparing for a potentially massive stock swing.
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The options-implied move for Nvidia stock the day after earnings is about 8% in either direction, according to data compiled by Bloomberg. That would represent a swing in market value of nearly $300 billion – larger than all but 25 companies in the S&P 500 Index. And according to Bank of America strategists, the report poses more risk to the benchmark than the next Federal Reserve meeting or inflation numbers.
As the poster child for artificial intelligence trading, Nvidia shares are up nearly 200% so far in 2024 and the reports have been the biggest event on the earnings calendar for more than a year. Shares fell 1.9% on Wednesday ahead of the chipmaker’s fiscal third-quarter results, which come out after markets close, and there is more uncertainty than usual about how the results and expectations will play out.
That’s because there are varying opinions on Wall Street about what to expect from the company’s newest product line, Blackwell. Nvidia has said the new chips will contribute several billion dollars in revenue in the fiscal fourth quarter, while Chief Executive Officer Jensen Huang described demand for the chips as “insane.” But production delays have made supply modeling – a notoriously difficult task – even more difficult.
“There is significant uncertainty surrounding Blackwell’s capacity,” said Dan Eye, chief investment officer at Fort Pitt Capital Group. “The CEO has built a lot of credibility, but the bar is very high,” he said, adding that it will likely be a challenge for Nvidia to deliver a huge blow for the next quarter.
The questions surrounding Blackwell have led to a wide spread in analysts’ expectations for the fiscal fourth quarter ending in January. The consensus is $37.1 billion – with the gap between the highest and lowest forecasts exceeding $7 billion, according to Bloomberg estimates. Nvidia usually provides revenue guidance for the coming quarter with its results.
Part of the reason for the difference in analyst forecasts is that some expect customers will delay purchasing Blackwell’s predecessor products, called Hopper, while waiting for the newer chips.
That’s what Morgan Stanley analyst Joseph Moore is anticipating and why he’s calling Wednesday’s results a “transitional quarter.” Nvidia will likely make a conservative forecast only slightly higher than the average analyst estimate, which should satisfy most investors as long as everything points to a very strong Blackwell ramp-up for the full year, Moore wrote.
Jim Worden, chief investment officer of Wealth Consulting Group, is also less concerned about Blackwell’s timing, with all signs pointing to strong demand.
“I expect we will see a very good showing with Blackwell and how much it costs,” he said. “That trend should continue next year.”
The chipmaker’s largest customers, including Microsoft Corp., Alphabet Inc., Amazon.com Inc. and Meta Platforms Inc., all pledged to invest more in capital expenditures in the coming year in their most recent results.
However, with a history of widely exceeding expectations, Nvidia may have to do more than just ensure Blackwell’s growth remains strong thanks to rampant demand for its accelerator chips. Nvidia’s sales have exceeded consensus by an average of about $1.8 billion over the past five quarters, according to data compiled by Bloomberg.
If Nvidia’s results fall below that bar, it could spell trouble for the stock, which is trading near an all-time high.
“The stock can be volatile, even with a very good report,” said Worden. The market may expect perfection, “and to the extent it isn’t perfect, stocks may pull back.”
Rick Bensignor, CEO of Bensignor Investment Strategies and a former strategist at Morgan Stanley, agrees.
“It can beat not only the consensus, but also the whisper-like numbers that people are looking for,” he said. “If things are disappointing, we could easily see a decline of around 10%.”
For the broader market, the implications of Nvidia’s results may not be fully priced in, said Charlie McElligott, Nomura’s cross asset strategist. The options on the Invesco Nasdaq 100 ETF imply only a 1.7% move on Thursday. “That might ‘feel’ light,” McElligott wrote.
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Income due Thursday
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–With help from Matt Turner, Subrat Patnaik, Jan-Patrick Barnert and Brandon Harden.
(Updates Wednesday’s trading in third paragraph.)
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