Saqib Iqbal Ahmed
NEW YORK (Reuters) – Traders are forecasting a big rise in Nvidia shares after the chipmaker reported earnings on Wednesday, although volatility expectations are more subdued than in the past, U.S. options markets showed.
Nvidia (NASDAQ:) options could rise 8.7% in either direction by Friday, according to data analytics firm Trade Alert. This would result in a $200 billion change in market capitalization, which is larger than the market capitalization of approximately 90% of the companies.
While the move is massive by most measures, it falls far short of the 16.4% jump in Nvidia shares following the company’s last quarterly earnings report. It’s also less aggressive than the average move of 12% that traders have forecast over the past eight quarters.
“Volatility and expectations were significantly higher last time,” said Chris Murphy, co-head of derivatives strategy at Susquehanna Financial Group.
Nvidia, whose shares are up about 87% this year, is considered a leader in the growing artificial intelligence industry and has a market value of about $2.3 trillion, making it the third-largest company on Wall Street behind Microsoft (NASDAQ:) and Apple ( NASDAQ). :). Wall Street is betting on Nvidia’s stunning quarterly report.
In recent months, investor interest has spread to other beneficiaries of the AI theme.
“AI benefits extend to energy, commodities and utilities,” BofA strategists including Gonzalo Asis wrote in a note Monday. “It’s not just about NVDA anymore.”
BofA strategists expect the company to deliver 9% earnings growth for the S&P 500 over the next 12 months, up from 37% over the past 12 months.
That doesn’t mean the upcoming earnings report is expected to be uneventful for the company’s share price.
Matt Amberson, founder of options analytics service ORATS, noted that implied volatility for out-of-the-money call options is roughly the same as that for out-of-the-money put options. This suggests options traders are not discounting the possibility of further gains in the stock, despite its already strong year-to-date rise.
“Traders expect moves up to be as sharp as moves down,” Amberson said.
Nvidia is expected to report earnings of $5.59 per share and increase quarterly revenue to $24.65 billion from $7.19 billion a year ago, according to LSEG.
Steve Sosnick, chief strategist at Interactive Brokers (NASDAQ:), said the downturn at Nvidia could test investors’ resolve for broader AI trading.
“Yes, the rally has extended, but I’m not sure how strong it would have been if Nvidia stock had fallen sharply,” he said.
“There’s a lot riding on the AI trade,” Sosnik said.