Nvidia traders brace for potential $300 billion in earnings – BNN Bloomberg

On November 20, 2024By Littum

(Bloomberg) — With Nvidia Corp. set to report an unusually complex quarter as the world’s most valuable company, traders are bracing for a potentially colossal stock swing.

The option-implied move for Nvidia shares the day after earnings is about 8% in either direction, according to data compiled by Bloomberg. That would equate to close to a $300 billion swing in market capitalization — larger than all but 25 companies in the S&P 500 index. And according to strategists at Bank of America, the report carries more risk to the benchmark than the next Federal Reserve meeting or inflation data.

As the poster child of the artificial intelligence industry, Nvidia has been the biggest event on the earnings calendar for more than a year. But for the chipmaker’s fiscal third quarter, expected on Wednesday after the market closes, there is more uncertainty than usual about how the results and guidance will play out.

That’s because there are differing views 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 CEO Jensen Huang described demand for the chips as “insane.” But production delays have made delivering models – a notoriously difficult task – even more difficult.

“There’s a big unknown around Blackwell’s capacity,” said Dan Eye, chief investment officer at Fort Pitt Capital Group. “The CEO has established a lot of credibility, but the bar is very high,” he said, adding that it will likely be a challenge for Nvidia to provide blowout guidance for next quarter.

The questions surrounding Blackwell have led to a wide spread in analysts’ expectations for the fiscal fourth quarter, which ends in January. The consensus is for $37.1 billion — with the difference between the highest and lowest projections of more than $7 billion, according to estimates compiled by Bloomberg. Nvidia typically provides revenue guidance for the upcoming quarter with its results.

Part of the reason for the gap in analysts’ forecasts is that some expect customers to delay purchases of Blackwell’s predecessor, called Hopper, in anticipation of the newer chips.

That’s what Morgan Stanley analyst Joseph Moore expects, and why he’s calling Wednesday’s results a “transitional” quarter. Nvidia is likely to provide a conservative forecast that’s only slightly ahead of the average analyst estimate, which should satisfy most investors as long as everything points to a very strong Blackwell ramp for the full year, Moore wrote.

Jim Worden, chief investment officer of Wealth Consulting Group, is also less concerned about the timing of Blackwell, with all signs pointing to strong demand.

“I expect we will see a very good show with Blackwell and how much it costs,” he said. “That trend should continue into next year.”

The chip maker’s biggest customers, including Microsoft Corp., Alphabet Inc., Amazon.com Inc. and Meta Platforms Inc., all pledged in their latest results to pump more into capital spending in the coming year.

But with a history of beating estimates in a big way, thanks to unbridled demand for its accelerator chips, Nvidia may have to do more than offer assurances that Blackwell’s rise remains strong. In the past five quarters, Nvidia sales have beaten consensus by an average of about $1.8 billion, according to data compiled by Bloomberg.

If Nvidia’s results fall short of that bar, it could spell trouble for the stock, which is trading near record highs after nearly tripling this year.

“The stock can be volatile, even on a really good report,” Worden said. The market may expect perfection, “and to the extent that it is not perfect, the stock may pull back.”

Rick Bensignor, managing director of Bensignor Investment Strategies and a former Morgan Stanley strategist, agrees.

“It can beat not just the consensus, but also the whisper-type numbers that people are looking for,” he said. “If it disappoints, we could easily see it drop 10% or so.”

For the broader market, the implications of Nvidia’s results may not be fully priced in, said Charlie McElligott, Nomura’s cross asset strategist at Nomura. Option limits on the Invesco Nasdaq 100 ETF suggest a move of just 1.7% for Thursday. “It might ‘feel’ easy,” McElligott wrote.