Nvidia earnings reports are triggering significant fluctuations in the S&P 500, with the AI giant shaking the entire market.

November 19, 2024

The Nvidia, a leader in AI technology, earnings report is increasingly causing a significant ripple effect on the overall market. The volatility of the S&P 500 index is expected to be 1.05%, indicating a greater influence than major economic data and FRB policy events.
Nvidia leads by 25% in S&P 500 earnings growth, and its earnings results are likely to significantly impact investor sentiment. With 10 instances of exceeding financial estimates in the past 12 quarters, its influence extends beyond single options to affect the entire market. Hedge strategies related to the Nasdaq 100 are being discussed in the market, and investors are preparing for the risks associated with this event.

The impact of Nvidia's earnings report on the S&P 500 may not be limited to individual options, but it could have a significant impact on the entire market. The company leads approximately 25% of the overall revenue growth rate of the S&P 500, and according to Bank of America's Gonzalo Asis, its market dominance is "outstanding". This influence is attributed to Nvidia's overwhelming position in AI technology. Due to the sharp increase in demand for AI chips, the company's growth has become an essential element in the overall revenue of the index ETF.
In the options market, the forecast volatility of the S&P 500 is 1.05%, a figure that exceeds the impact of important economic indicators such as inflation and employment statistics. This indicates that Nvidia's earnings are recognized as a barometer that determines the market's direction. However, if stock prices show unexpected movements in similar cases, there is also a risk of significantly impacting investor sentiment. The market may be divided between speculators who see this uncertainty as an opportunity and investors who prioritize risk aversion.

Hedging strategies for the Nasdaq 100 in preparation for Nvidia's earnings reports reflect investor caution. Bank of America presents a strategy using put spreads of Invesco QQQ Trust (490-480 dollars), pointing out that with a minimal investment of 2 dollars, 5 times the return can be expected during a 3.3% decline. This approach is gaining attention as a means to mitigate the risks associated with direct investment in specific stocks.
However, directly hedging against Nvidia stock is not inexpensive. Significant stock price fluctuations have been observed during past earnings announcements, leading Mr. Ashis to warn that investors should maintain a cautious stance. Particularly with the recent decline in post-election optimism, market vulnerability has increased. These trends further emphasize the impact of Nvidia's performance on the overall market.
The hedging strategy of the Nasdaq 100 indicates an awareness of the risks associated with reliance on individual stocks in the market. Simultaneously, it highlights the current situation where investors are exploring diversified risk mitigation methods.

The past 12 quarters of Nvidia's performance data tell a story of the company's consistent growth. According to Benzinga Pro, during this period, it exceeded EPS estimates 10 times, maintaining stability in terms of revenue. However, the average stock price fluctuation after earnings announcements reached 5.3%, with significant movements such as a 24.4% increase or a 7.6% decrease also observed. This data illustrates the magnitude of the impact that Nvidia's earnings announcement can have on the market if unexpected results are reported.
Considering this past data, the market's caution towards this earnings announcement is understandable. However, it should also be noted that past success does not guarantee future continuation. Especially the intensifying competition in the ai chip market and changes in the economic environment are unknown factors that may affect Nvidia's growth trajectory.
In conclusion, Nvidia's performance data is an important factor shaping overall market sentiment, but due to its significant influence, the importance of risk management is also heightened. Investors need to combine data-based and rational decision-making with flexible strategies to prepare for unexpected situations.