Nvidia's rebound ahead of earnings: key factors to watch

Moomoo News AU joined discussion · Aug 20 06:13

by Jinta Hong, CFA

20% rebound from pullback

$NVIDIA (NVDA.US)$ has experienced a significant rebound, with its stock price surging over 20% from its low point earlier in August after the Black Monday sell-off. Following a 6-day winning streak, Nvidia closed at $130, up 4.35% on Monday. This rally has brought the stock within $10 of its all-time high. The primary driver of this recent resurgence is the robust demand for Nvidia's GPUs, which are essential for running generative AI workloads, together with the improved sentiment of retail investors. Goldman Sachs has reiterated its Buy rating on Nvidia, citing strong demand from cloud service providers and enterprises for AI infrastructure. This bullish sentiment is shared by many on Wall Street, as the company prepares to release its fiscal Q2 2025 results on August 28.

Nvidia's rebound ahead of earnings: key factors to watch

Optimistic earnings projections

As Nvidia gears up for its upcoming earnings report, analysts are optimistic about another strong quarter. The demand for AI-related hardware, particularly Nvidia's Hopper-based GPUs and early shipments of the Blackwell products, is expected to drive sequential growth in the company's Data Center revenue. Despite some reports of a delay in the Blackwell chip, analysts believe that the market will overlook any short-term volatility, focusing instead on the long-term growth potential. Nvidia's EPS are anticipated to be $0.6, indicating a 141.7% YoY increase, and revenue is expected to reach $28.58 billion, reflecting a 111% growth YoY.

Goldman Sachs analysts have highlighted several positive indicators, including an improved outlook for AI demand from Taiwan Semiconductor Manufacturing, an increase in AMD's full-year Data Center GPU revenue outlook, and positive comments from major hyperscalers about their AI infrastructure investments. Additionally, companies like Super Micro Computer have reported strong earnings and guidance, reinforcing the view that demand for AI servers remains robust.

The consensus among analysts is that Nvidia will continue to benefit from the ongoing AI spending boom, with its high-performance GPUs playing a critical role in the development and deployment of AI models across various industries. Nvidia's competitive position in AI and accelerated computing remains strong, and its management is expected to provide further insights into the company's growth trajectory during the upcoming earnings call.

Potential risks and macro concerns

While the outlook for Nvidia appears promising, several risk factors could pose challenges. Firstly, there are concerns about falling margins and delays in the Blackwell chip, which could impact short-term profitability.

Macroeconomic factors also present risks. The increase in the unemployment rate in July has triggered the Sahm Rule, indicating market concerns about a potential recession. Despite this, consumer spending data remains strong enough to stave off a recession. The upcoming Jerome Powell's speech at the central bank's annual meeting in Jackson Hole on Friday is therefore a critical event for investors.

Options strategies

Given the potential for both upside and downside in Nvidia's stock, options strategies can provide a way to manage risk and capitalize on market movements. Here are two options strategies you can learn:

Buy a Call: A long call strategy, buying a call option at a lower strike price, is primarily used when an investor expects a significant increase in the price of the underlying asset and wants to participate in the upside potential with small initial investment.

Long Straddle: A long straddle involves buying both a call and a put option at the same strike price and expiration date. This strategy profits from significant price movement in either direction, making it suitable for periods of high volatility, such as earnings announcements. For example, with Nvidia trading at $130, an investor could buy both a $130 call and a $130 put expiring shortly after the earnings report.