Traders are pricing in a US$355 billion swing in Nvidia’s market value after the company reports first-quarter earnings on Wednesday, according to options positions that indicate the market is still bullish on the AI giant while keen to protect gains.
The chipmaker’s options imply a move of about 6.5 per cent in either direction on Thursday, a day after the company reports results.
That would translate into a swing of roughly US$350 billion in market capitalization - more than the individual market value of about 90 per cent of S&P 500 constituents.
While that is higher than the 5.6 per cent move implied ahead of the company’s February earnings, it is still well below Nvidia’s historical average price swing of 7.6 per cent, according to analytics firm Option Research & Technology Services (ORATS).
That suggests the market is becoming more sanguine about the company’s earnings, despite long-simmering fears that massive AI capital expenditure more broadly may prove unsustainable.
“I think investors have become complacent about AI/capex,” said Matt Amberson, founder of ORATS.
Some individual trades underscore a strong conviction that Nvidia could once again deliver an upside surprise. One notable Monday trade was the purchase of a 25,000 call spread expiring June 1 for US$1.78, betting that Nvidia could rise roughly 16 per cent to $260 per share in the next two weeks, with a potential payoff more than seven times the initial cost, according to Chris Murphy, co-head of derivatives strategy at Susquehanna, a market maker.
Murphy said the chipmaker’s options skew has shifted toward calls, indicating growing demand for upside exposure.
“The market is no longer simply paying up for downside protection. It is increasingly paying for upside participation,” Murphy said, adding that bets on rising prices of tech stocks went from a five-year low in March to a five-year high by mid-May.
AI sector hedging
While traders are bullish on Nvidia, increasing hedging and profit-taking across semiconductor stocks and related exchange-traded funds suggest that even the most bullish investors are looking to protect gains after the sector’s sharp run-up.
That tension reflects a key dynamic heading in to earnings: investor expectations are high, and the bar for Nvidia, as the semiconductor giant at the heart of the AI trade, is rising.
Nvidia’s shares have gained 19 per cent this year, while the S&P 500 is up eight per cent year to date and the Philadelphia SE Semiconductor Index has risen 57 per cent over the same period.
Investors will be watching closely to see if Nvidia’s results support the recent rise in both prices and volatility in AI and chip stocks, and will watch in particular for signals on data center demand, hyperscaller spending, margins and forward guidance, all of which are critical to sustaining the AI-driven rally, said Murphy.
He added: “The other thing to keep in mind is that semi (conductors) have become a crowded leadership area. The options market is saying they are still willing to chase upside in Nvidia, but they are also starting to hedge or monetize gains in other crowded winners.”
(Reporting by Laura Matthews in New York; Editing by Michelle Price and Matthew Lewis)
