Ahead of NVIDIA's Earnings Report, Traders Are Making Bullish Bets

Nvidia’s much-anticipated earnings report on Wednesday has investors speculating whether it will reignite enthusiasm for the artificial intelligence (AI) trade. Many are preparing for significant movements in the stock, scooping up options that could yield gains if Nvidia’s shares surge by over 10% this week.

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Nvidia, known for its graphics-processing units (GPUs) essential to AI systems like OpenAI’s ChatGPT, recently reclaimed its position as the world’s largest publicly traded company. The company’s stock has more than doubled in 2024, following a stellar performance in 2023, where it tripled in value.

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This explosive growth has made Nvidia a focal point of Wall Street, with its earnings day being compared to key Federal Reserve meetings and critical economic reports in terms of market influence. Dubbed “Nvidia Day,” the event has inspired memes, viewing parties, and substantial, often high-risk, bets on the company’s stock.

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The AI-driven rally propelled stock markets earlier this year, but investor enthusiasm began to cool by fall. Concerns arose about the substantial investments in AI by large tech firms and whether these would translate into sustainable returns. Still, Nvidia’s stock remains a magnet for traders, with some of the most actively traded options contracts in recent days tied to shares climbing to $155 or $162.50. Nvidia closed last week at $141.98, and call options—securing the right to buy shares at a specific price within a set timeframe—have drawn significant interest.

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Damon Gnojek, a UPS preloader in Oregon, is among those betting on Nvidia’s potential. He purchased call options expecting the stock to hit $177.50. Gnojek, who began trading stocks in 2019, became intrigued by Nvidia after hearing Oracle co-founder Larry Ellison describe how he and Elon Musk persuaded Nvidia’s CEO Jensen Huang to provide GPUs for their ventures.

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“Nvidia isn’t personal for me,” Gnojek said, adding that the company’s GPUs have become indispensable for major players in the AI field. Confident in the current market conditions, he believes Nvidia shares will continue climbing, fueled by optimism about declining interest rates and a shift toward riskier assets.

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Historically, Nvidia’s stock experiences significant swings post-earnings, and traders are anticipating a 12% move in either direction this time, translating to a market value fluctuation of approximately $407 billion. Over the past eight earnings reports, Nvidia shares have averaged moves exceeding 9%, according to Vishal Vivek, an equity and derivatives strategist at Citigroup.

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This volatility has made Nvidia a dominant player in the options market, with around $504 billion in options premiums—contract prices—trading hands this year, according to Cboe Global Markets. That figure surpasses the combined totals for tech giants like Apple, Amazon, Alphabet, Advanced Micro Devices, and Meta Platforms.

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JJ Kinahan, CEO of IG North America, said market participants are closely monitoring demand for Nvidia’s Blackwell chips. "Everyone is watching to see if demand matches the hype,” Kinahan said, reflecting widespread belief in Nvidia’s capacity to sustain its momentum.

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For its third-quarter results, Nvidia faces lofty expectations. Analysts surveyed by FactSet predict sales of $33 billion and profits of $17.4 billion, a substantial increase from $18.1 billion in sales and $9.2 billion in profits during the same period last year.

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Despite this optimism, some market strategists caution against overconfidence. Nvidia’s stock dipped 6.4% after its last earnings report in August, despite exceeding expectations, as the results fell short of the blowout performances seen in previous quarters. With the stock trading at around 36 times projected earnings for the next 12 months—up from 34 times earlier this year—investors are wary about how much further it can rise.

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Mishelle Orrego, a 21-year-old computer science student specializing in AI at the University of Georgia, has also placed bullish bets on Nvidia using call options. Orrego built her own computer using Nvidia’s Founders Edition GPU and is convinced of the company’s long-term potential. However, she opted not to extend her options beyond last week and plans to reassess her strategy based on the earnings report.

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“It’s important not to be too greedy,” Orrego said, highlighting the need for cautious optimism even amid confidence in Nvidia’s continued dominance in the AI sector.

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As the earnings report approaches, Nvidia remains at the center of Wall Street’s focus, embodying both the opportunities and risks inherent in the rapidly evolving AI landscape. Whether the results exceed expectations or fall short, Nvidia’s influence on the market and its role in shaping the AI narrative will undoubtedly persist.

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