Traders brace for a R4.5-trillion swing in Nvidia’s value

Options traders are pricing in a US$280-billion (R4.5-trillion) swing in Nvidia’s market value after the company reports second-quarter earnings on Wednesday afternoon, as investors seek fresh insight into the demand driving the technology sector.

The chip maker’s options are pricing in a 5.4% move in either direction on Thursday, a day after the company reports results, which is below the 6.5% move implied ahead of its May earnings report.

The implied move translates to about $280-billion in market capitalisation — more than the individual market value of about 90% of S&P 500 constituents. The expected move also remains well below Nvidia’s historical average price swing of 7.4% over the last 12 quarters, according to analytics firm Option Research & Technology Services (Orats).

“That shows some complacency for Nvidia, and it means it’s getting more predictable,” said Matt Amberson, founder of Orats.

The relatively modest moves reflect a pattern over the past two years in which actual post-earnings stock swings have frequently fallen short of what options markets had priced in, said Chris Murphy, co-head of derivatives strategy at Susquehanna, a market maker.

“I think the beginning of the AI era when Nvidia was surprising everybody with the huge earnings beats and 10%, 15%, 20% moves, that’s kind of over,” said Murphy. “There’s just not a huge view that they’re going to catch everybody off-guard with some giant beat and the stock’s going to really rally.”

Nvidia shares on Monday posted a decline for the seventh consecutive trading day, but they have risen 11.7% this year. The S&P 500 is up 11.8% year-to-date and the Philadelphia SE Semiconductor index has risen 61%.

Nvidia’s pullback has come at a time of broad market unease. Concerns over rising energy prices and mounting US government debt have pushed US treasury yields higher, with 30-year yields last week hitting a 19-year high and prompting the treasury to unveil measures aimed at easing market strains.

The recent yield surge has hit growth and technology stocks, pushing Wall Street’s major stock indexes lower and heightening focus on Federal Reserve chair Kevin Warsh’s planned speech in Jackson Hole, Wyoming, later this week. It may provide clues on how policymakers view the economic outlook, particularly for interest rates.

Against this backdrop, investors will be watching Nvidia’s revenue guidance, chip demand, profit margin and whether major cloud providers continue to increase AI-related capital spending. As the dominant supplier of AI chips, Nvidia is viewed as a bellwether for the broader AI trade.

Nvidia recently partnered with six major financial institutions on financing platforms targeting more than $500-billion for AI infrastructure, highlighting the massive capital required as companies and governments race to build data centres for AI workloads.

Nvidia probably has “a pretty good pulse on the hyperscaler capex trajectory. Return on investment from the hyperscalers is really important,” said Will Sterling, chief investment officer at TritonPoint Wealth. “That will dictate whether or not they continue to invest with their capex.