To calculate what the odds makers (read options market makers) are expecting following this week’s Nvidia Corp. (NVDA) earnings report, we can look at the pricing of an at-the-money straddle. Early Monday, NVDA is trading between US$129 and $130.
The $129 calls are at 7.30 and $129 puts it at 6.90 or $14.20. This means that investors are expecting about an 11 per cent move in either direction this week. These options expire at 4:00 p.m. on Aug. 30.
The chart below shows the past three earnings reports (green E) and the 12 month forward based consensus (solid thick red) with the rising 200-day average (thin black) and the $14.20 options based post earnings price range (dotted blue).
All will likely know that NVDA is the leader in artificial intelligence and cloud computing trends. Most would agree that we are still very early in this cycle. As a value investor, I struggle with valuation on high-growth stocks like this. It’s not my forte. What’s clear from looking at the chart is that it makes more sense to buy the dip than the rally versus chasing the breakout. That said, the performance of NVDA following earnings over the past year does not offer much insight.
For the November 2023 earnings, the stock ran up into earnings and the forward analyst price target was much higher. While beating earnings, the stock sold off for about two weeks post-earnings. In February 2024, the stock pulled back a little into earnings and rallied strongly for about two weeks post-earnings before retracing back to the earnings price gap over the following month.
In May 2024, the stock was near an all-time high with a modest forward target only to rip higher for several weeks before filling the breakaway gap on the early August swoon.
If the stock gaps up 11 per cent to new highs it needs to run higher for a few weeks or a sharp correction (profit-taking) is likely on a failed breakout. If the stock gaps down, there seems to be more risk on the downside back to the August lows with no clear support around the 11 per cent area.
Risks seem a bit more negative than positive. The rising 200-day average has not been tested since markets broke down in 2022. NVDA is trading at 47 times 2025 earnings per share (EPS) of 2.71.
The most bullish analysts see 175/180 and the most bearish 90/100. There are 66 buys and eight holds. There are no sells.
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