Nvidia (NVDA.US) earnings report tests AI beliefs: the options market expects a market capitalization fluctuation of US$280 billion

The Zhitong Finance App notes that options traders are pricing changes in market capitalization after the second-quarter earnings report announced by Nvidia (NVDA.US) after the US stock market on Wednesday (early Thursday morning Beijing time). The market value fluctuation is expected to reach 280 billion US dollars. At this time, investors are looking for new clues to drive demand in the tech industry.

On Thursday, the day after the chip manufacturing giant announced its earnings report, its options pricing showed that the stock price would fluctuate 5.4% in both directions. This expected fluctuation is lower than the 6.5% fluctuation rate implied before the May earnings report was released.

This implied volatility is equivalent to about $280 billion in market capitalization—more than the market value of a single company with about 90% of the S&P 500's constituent stocks. However, according to data from analyst firm Option Research & Technology Services (ORATS), this expected fluctuation is still significantly lower than Nvidia's historical average share price volatility of 7.4% over the past 12 quarters.

Matt Amberson, founder of ORATS, said, “This shows that the market has developed a certain degree of complacency with Nvidia, and it also means that its performance is becoming more and more predictable.”

Chris Murphy (Chris Murphy), co-head of derivatives strategy at market maker Susquehanna, said that the relatively moderate volatility reflects a pattern over the past two years where the actual fluctuation of stocks after earnings reports are released is often lower than the price set in the options market.

Murphy said, “I think the early days of the artificial intelligence era have come to an end. At that time, Nvidia always shocked everyone with huge performance exceeding expectations, and brought about a sharp rise in stock prices of 10%, 15%, and 20%.” “The market generally no longer believes that they will use some kind of huge performance that exceeds expectations to catch everyone off guard and drive a sharp rebound in stock prices.”

On Monday, Nvidia shares were lower for the seventh consecutive trading day, but are still up 11.7% since this year. The S&P 500 has risen 11.8% so far this year, while the Philadelphia Semiconductor Index has cumulatively increased 61%.

Broader market pressures

The correction in Nvidia's stock price comes at a time when overall market unease is spreading. Concerns about rising energy prices and rising US government debt have boosted US bond yields. Last week, 30-year US bond yields hit a 19-year high, prompting the Treasury Department to introduce measures aimed at easing market tension.

There are reports that Treasury Secretary Bessent may use the government's nearly $1 trillion Treasury General Account (TGA) to help fund bond buybacks rather than increase issuance. This caused the 30-year yield to drop slightly on Monday, but it still hovers above 5%.

The recent surge in yields hit growth stocks and technology stocks, pushed major Wall Street indices lower, and made the market pay more attention to the speech scheduled to be delivered by Federal Reserve Chairman Kevin Walsh later this week in Jackson Hole, Wyoming. This may provide clues to how policymakers view the economic outlook, particularly interest rate prospects.

In this context, investors will pay close attention to Nvidia's revenue guidance, chip demand, profit margins, and whether major cloud service providers continue to increase capital expenses related to artificial intelligence. As the leading supplier of AI chips, Nvidia is seen as a trend vane for AI transactions more broadly.

Nvidia recently partnered with six major financial institutions on a financing platform with the goal of raising more than $500 billion for AI infrastructure, underscoring the enormous amount of capital required as businesses and governments compete to build data centers for AI workloads.

Will Stirling, chief investment officer at TritonPoint Wealth, said that Nvidia may “have a very accurate view of the capital expenditure trajectory of hyperscale customers. The return on investment for hyperscale customers is critical. This will determine whether they will continue to make capital expenditure investments. If this were to happen, I think it would be beneficial to the entire ecosystem from a risk appetite perspective.”