Nvidia (NVDA) is scheduled to report earnings today, after close. The stock hit a record high near $481.87/share yesterday on Tuesday and closed at $456.68/share. The stock has been on fire since the start of 2023, rising more than 210% year to date.
It’s important to note that everyone expects a huge move earnings, and it’s clear that we will see NVDA quickly gap up if the results are strong. However, if the results are disappointing, the stock might quickly gap down. This is obviously a very trivial statement, but these big moves are what keeps everyone’s eyes on earnings for stocks like Nvidia. Everyone get’s excited at the prospect of winning big by guessing the correct direction of the stock, especially with tech earnings. Here in this article, I’d like to offer some guidance for those looking to play earnings, either by buying or shorting the stock or purchasing call or put options.
Wall Street analysts are expecting the chip giant to post second quarter adjusted earnings of $2.07 per share and revenue of $11.04 billion, according to Bloomberg data. I can say, based on my research, that the market is overall bullish on this stock. Analysts have been raising their price targets on NVDA, Baird’s Tristan Gerra and his team writing that they “expect a significant beat” for Nvidia’s fiscal second quarter in a recent note to investors. The firm cited “very significant momentum in AI demand for Nvidia” and raised its price target on the stock to $570 from $475 while maintaining an Outperform rating.
“NVIDIA remains our Top Pick, with a backdrop of the massive shift in spending towards AI, and a fairly exceptional supply demand imbalance that should persist for the next several quarters,” Morgan Stanley’s Joseph Moore and his team wrote in a note to clients.
Meanwhile, UBS analysts raised their price target to $540 from $475, writing that Nvidia “is quite literally serving as ‘kingmaker’ as a huge wave of capital and new financing vehicles are chasing new AI software and specialized cloud infrastructure models.”
The chip manufacturer has been dominating the IT industry during the AI boom, growing higher thanks to its powerful graphics cards and server goods. Clearly, if you listen to the experts and are looking to trade options, calls would be the right move, right? At the time of writing this, if I were to purchase a NVDA 8/25 465c, it would be $23.45. This means that the stock would need to rise approximatly 5% by Friday to break even on this position. Going further out-of-the-money offers a cheaper contract, for example 8/25 480c stands currently at $17.40. But it also requires a greater move to break even, a staggering 7%. These might not seem like large moves, but keep in mind, Nvidia is a 1.15 trillion dollar company. Nobody should be expecting large >20% moves we tend to see with smaller tickers. And this is why I’m not getting NVDA calls for earnings. The contracts are too expensive, and the expected move is too large.
If you are bullish on NVDA, try a call spread. This means buying the lower OTM strike, and selling a higher OTM strike. While this caps your potential gains, it allows you to enter a position without putting up a huge amount of capital. It allows you to “play” earnings, without having to spend thousands on one contract.
That being said, this article is for education purposes only and does not constitute as financial advice. If you want to discuss earning plays among other analysts and traders, feel free to join our discord server. Here, we’re always discussing earnings as they come and picking out tickers to play based on real research and analyst findings. Hope to see you in here!
