Bracing for Nvidia's heavyweight earnings report

Moomoo Learn joined discussion · Aug 23 05:50

$NVIDIA (NVDA.US)$ will announce its Q2 earnings on August 28th, and this could be a major event for global markets. Why? Because this report might significantly impact the AI sector and set the tone for U.S. tech stocks going forward. With recent market volatility, its importance can't be overstated.

So, let's break down the current landscape and explore how investors can get ready.

Recap: What has Nvidia experienced recently?

I. Stock price recovery

Since "Black Monday" on August 5th, Nvidia's stock has surged nearly 30% over ten days, almost reclaiming all previous losses. Such a strong rebound underscores its reputation as the highly respected.

Bracing for Nvidia's heavyweight earnings report

II. Market optimism for Q2 earnings

Nvidia's swift recovery reflects the market's high expectations for its Q2 earnings. This optimism isn't unfounded; Nvidia has consistently outperformed market expectations in past earnings reports.

On moomoo, go to Company > Financials > Financial Estimates, you can see how Nvidia's revenue and EPS have rapidly grown over the past year, consistently surpassing market forecasts.

III. Underlying concerns

Despite strong performance, why did Nvidia's stock dip from late July to early August? Beyond a challenging market environment, several negative factors pressured the stock:

Delayed chip release: Rumors suggest that the launch of the Blackwell GPU might be delayed until Q1 next year. This next-gen product was highly anticipated when announced earlier this year.

Executive stock sales: Following Nvidia's rise to the top of the global market in June, CEO Jensen Huang and other executives have been selling off shares.

Increasing competition: More tech giants are seeking alternatives to Nvidia for advanced AI training. $Advanced Micro Devices (AMD.US)$ 's strong Q2 performance highlights this growing competition.

What could happen after the earnings report?

Nvidia's stock could either rise, stay flat, or fall. Let's break down the potential catalysts for each scenario:

Catalysts for a stock rise

Earnings significantly exceed market estimates.

Management expresses strong confidence in market demand for the rest of the year and beyond.

The Blackwell GPU delivery schedule remains unchanged.

Reasons for flat performance

Earnings only slightly exceed expectations.

Earnings guidance fails to excite the market.

Triggers for a stock drop

Noticeable slowdown in revenue growth or a decline in profit margins.

Earnings guidance falls short of expectations.

Given the high expectations surrounding Nvidia, merely meeting estimates might not be enough to boost the stock; it may require exceptional performance. If there are any signs of weaker performance, the market might even start pricing in the notion that AI has peaked.

When a high-profile company like Nvidia releases its earnings, it presents a rare trading opportunity for various types of investors. Here are some strategies to consider, depending on your risk tolerance.

Trading Nvidia stock

Many investors continue to hold onto Nvidia shares, firmly believing in the immense growth potential of AI, which could drive Nvidia's market cap to $10 trillion as some claim. If this optimistic scenario plays out, holding onto the stock could yield better returns than frequent trading.

However, Nvidia's high valuation already reflects significant future optimism. If the U.S. economy slows and corporate clients reconsider large-scale AI chip purchases, Nvidia's stock might not fare as well. Investors should keep a close eye on two key points:

AI Capital Expenditures (CAPEX) of major tech companies

Whether Nvidia can maintain its dominant market position.

For those uncertain about Nvidia's long-term trajectory, technical indicators can be useful for momentum trading. Consider using the 5-day and 20-day moving averages:

Sell Signal: If the upward trend line is broken.

Buy Signal: If the downward trend line is breached.

Typically, the 5-day moving average indicates short-term trends, while the 20-day moving average reflects mid-term trends.

Trading ETFs tracking Nvidia stock

Single-stock ETFs tracking Nvidia can amplify (or inversely amplify) Nvidia's daily movements, making them suitable for investors who are highly optimistic (or pessimistic) about Nvidia's Q2 earnings. For more details, see: NVDA or NVDL? Choosing Between Stocks and 2x Leveraged Single-Stock ETFs.

For the purpose of diversification, an AI ETF allows you to invest in Nvidia while also including other AI stocks. For more details, see: Afraid of NVDA's heights? Try an AI ETF!

Some semiconductor ETFs can also help achieve diversification (examples are in the chart below). For more details, see: How to choose among the top 10 semiconductor ETFs amid the AI wave?

Trading Nvidia options

The simplest approach is to buy calls if you're bullish and buy puts if you're bearish, but this carries high risk and is speculative.

For long-term investors, if you believe Nvidia's stock won't surge after the Q2 earnings report, you might consider the covered call strategy to reduce investment costs. For example, if you think the stock won't exceed $135, you can sell a call option with a $135 strike price.

Another option is the straddle option strategy. For more details, see: Straddle

If you expect the stock to either rise or fall significantly after the earnings report, use a long straddle to profit in either direction (risk: the stock stays flat).

Conversely, if you think the stock will remain flat, use a short straddle to earn premium income (risk: the stock moves sharply).

Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only. Read more