Nvidia Ahead of Earnings: Bullish or Bearish?

Nvidia's biggest hurdle may be its rivals, not the company itself

• Nvidia has been one of the strongest beneficiaries from the artificial intelligence boom.

• NVDA stock recently reached a high of $974 on Mar. 8, but is trading $100 lower.

• Nvidia is set to report earnings in late May

Nvidia (NVDA) has become a household name over the past year, with the artificial intelligence boom benefiting many tech stocks. Graphics processing units, or GPUs, are in top demand these days, and Nvidia is a key producer of said computer chips.

While Nvidia is a key cog in the AI revolution, there are other companies like Intel (INTC), Advanced Micro Devices (AMD), and Taiwan Semiconductors (TSM) that are nipping at the heels of the tech giant with innovative products and services that are highly competitive.

Stock more than doubled in a year

Looking at a chart of NVDA stock performance, see that even though it's down $100 from the recent high of $974 realized in March, that recent decline doesn't tell the whole story. The stock has more than doubled from a year ago, and it is up over 76% for the year to date.

With substantially more bullish days compared to bearish days, the stock has surged higher with no real ceiling in sight.

One concern for the tech giant may be the overall economy and the turbulence around interest rate cuts, or lack thereof. Just a few days ago, the probability of an interest rate cut in June was around 50%. Now, that probability has dropped to just 20% after a hot CPI report on Tuesday, April 9.

When investors have a high risk-free rate of return with an elevated interest rate, there's less of a reason to take risk in the stock market. When interest rates are cut, there is more incentive to participate in the stock market. Experts expect interest rate cuts this year. It wouldn't be surprising to see Nvidia be one of the main beneficiaries of a rate cut, risk-on environment.

Options offer context

Regardless of opinion, we can always look to the options market to get a contextual sense of stock price expectations for certain periods.

Nvidia is set to report earnings within the May 24 options cycle, as we can see with the big implied volatility boost in that weekly cycle with 43 days to expiration from today. The expected stock price move for that cycle is currently +-$131.65, which is almost 10% of the stock price. This is on the higher end of the range, as we typically see earnings-move estimations fall between 5-10% of the stock price.

The upcoming earnings announcement makes up about 50% of the expected move for the rest of the year, which is currently at +-$261.91 in the Dec 2024 options cycle.

Bullish on Nvidia in 2024

Looking at the tastytrade research & news tab, we can see news, fundamentals, ratios, and forecasts for Nvidia. Of 53 analysis predictions for the stock, 49 of them have a strong buy or buy rating. None of these analysts have a sell or strong sell rating, which tells us everything we need to know - the market & social sentiment around NVDA stock is extremely bullish.

Nvidia already plays a huge role in the AI revolution, and the company has such a large market cap now it's hard to imagine a world where they're overtaken by a rival. Nvidia bulls in 2024 will likely want to see more reliance from big-name tech stocks, more innovation from the NVDA product suite, and consistent outperformance for each of the earnings calls this year. Nvidia has exceeded earnings-per-share (EPS) and revenue estimates for each of the past four earnings calls by almost double-digit percentages every time, and these estimates have skyrocketed each earnings call.

Bearish on Nvidia in 2024

Nvidia bears likely believe that the company is overbought, and that the competitive landscape for chip demand may be more balanced than the market is telling us right now. Heightened earnings expectations also mean there is less wiggle room for an earnings miss, and earnings misses are rarely seen as bullish stock price indicators in a stock with such a large market cap.

We can't forget about the overall economy either - when the hot CPI report came out on Tuesday, we saw almost the entire market sell off. Individual equities still have their weaknesses, and a turbulent economy may create a tough environment for tech, which has already seen such massive movements to the upside the past year. This could result in profit taking, which can create downside pressure on a stock that's performed well already.

Regardless of how you look at it, 2024 will be an interesting year for tech stocks, specifically big gainers like Nvidia.

Tune in to Options Trading Concepts Live ahead of the Nvidia earnings announcement in May for options trading strategy ideas!

Mike Butler, tastylive director of market intelligence, has been in the markets and trading for a decade. He appears on Options Trading Concepts Live, airing Monday-Friday. @tradermikeyb

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