This is not investment advice. The author has no position in any of the stocks mentioned. Wccftech.com has a disclosure and ethics policy.
The AI hedgehog day (pun intended) is upon us, for the fate of the market's ongoing bull run hinges on NVIDIA producing another stellar guidance out of its repertoire of market-pleasing announcements today.
NVIDIA's Q1 2025 Earnings Expectations
NVIDIA is gearing up to announce its earnings for the first quarter of its fiscal year 2025 later today.
Analysts expect NVIDIA to report $24.69 billion in revenue for the quarter, translating into an EPS of $5.65.
On a more granular level, NVIDIA's AI-critical data center segment is expected to do most of the proverbial heavy lifting, with top-line expectations currently pegged at $21 billion, and constituting a massive surge from $4.28 billion in revenue that the segment earned in last year's comparable quarter.
In contrast, NVIDIA's gaming segment is expected to witness a more modest year-on-year growth, with analysts pegging their revenue estimates at $3.5 billion vs. the $2.24 billion that the company earned in last year's comparable quarter.
Of course, the fate of NVIDIA's ongoing bullish mania currently rests on the magnitude of the upbeat guidance that the company can provide later today. Given the friction involved in ramping up the production of its latest Blackwell chips, some analysts expect NVIDIA to hit an air pocket of sorts, where customers withhold orders for the current production-ready lineup of GPUs in anticipation of getting their hands on the much more efficient Blackwell chips later on.
$NVDA's options are implying a +/- 8.7% move post-earnings, equivalent to $200 billion — larger than the market cap of 90% of S&P 500 stocks.
However, the current implied move for Nvidia ER is less aggressive than the historical average of +/- 12% over the last 8 quarters. pic.twitter.com/twTENPjEvP
— Wall St Engine (@wallstengine) May 22, 2024
Finally, as implied by an at-the-money straddle, the market is currently pricing in a 8.7 percent (positive or negative) move in NVIDIA shares in the post-earnings phase. This equates to a swing of around $200 billion, which exceeds the market capitalization of roughly 90 percent of the S&P 500 index constituents. Yet, this implied post-earnings move is relatively modest when viewed through a historical lens, where a 12 percent (positive or negative) implied move has been the norm over the past eight quarters.
A Superior Way To Play The GPU Maker's Earnings
$SMH IV seems too low.
Current 1-month $SMH IV (teal) vs IV into previous $NVDA ER (gold) and GTC (gray).
Shaded cone is the 90-day IV range (10th - 90th %'ile) https://t.co/PiMmdFOYTF pic.twitter.com/lOME5hlhD1
— SpotGamma (@spotgamma) May 22, 2024
The VanEck Semiconductor ETF (NASDAQ: SMH) retains a 20 percent exposure to NVIDIA. As recently noted by SpotGamma, the ETF's current 1-month implied volatility (IV) is quite low, especially when compared with the level heading into NVIDIA's last earnings announcement. Consequently, instead of establishing a super-expensive straddle - which involves buying an at-the-money put and call - on NVIDIA itself, it might be more expedient to buy a straddle on the VanEck Semiconductor ETF.
As can be seen in the above snippet, a straddle on NVIDIA currently requires a 8.29 percent move to break even on the upside and a 9.04 percent move to do so on the downside.
In contrast, a straddle on the VanEck Semiconductor ETF currently requires only a 4 percent move on the upside and a 4.17 percent move on the downside to break even.
If you believe that the market is mispricing the ETF's at-the-money volatility, buying a straddle appears to be a no-brainer arbitrage move.
