How to Trade the Nvidia Earnings Report
The stock is expected to make big swings either way, so get ready.
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The most important stock in the market reports on Wednesday. Based on the activity of options, it is expected to move about 8% in either direction.
For years, the most important earnings report for each quarter was from Apple AAPL, but it has now been surpassed by Nvidia NVDA. Nvidia provides jet fuel in the form of specialized semiconductors that are powering the AI revolution. It has become the world's most valuable company by market capitalization.
A total of 39 of the 42 analysts who follow Nvidia have a "buy" rating on the stock. The average target price is $165.18, with a high target of $200.00. The stock is currently trading at around $147, so there is a potential gain of around 12.4% before it hits the average target price.
It is highly likely that Nvidia will report numbers ahead of current earnings per share and revenue estimates, and that it will raise forward guidance. But a triple beat doesn't necessarily mean that the stock will trade higher. Virtually everyone expects a strong report, but the issue is whether it will surpass the already high expectations.
One of the more bullish analysts on the stock is Dan Ives of Wedbush. He stated on X that, "We expect a drop the mic performance from Nvidia as Godfather of AI, Jensen & Co. is the only game in town. With $1 trillion of AI CapEx on the way with Nvidia's GPUs, the new oil and gold in this world. We believe $2 billion beat/$2 billion guide higher."
That is a very aggressive and optimistic forecast, but the question for traders is whether the stock will sell off if those very lofty expectations are not met.
Historically, over the last 43 earnings reports, the stock has been up on earnings 27 times with an average gain of about 3.75%. The biggest gain was 30% in November 2016. The biggest loss was 19% in November 2018.
The stock has become more volatile over the years, and based on the trading of options, it is expected to move around 8% or $12 in either direction. A good report would take it very close to the current average target of $165.18 and likely lead to many target increases. An in-line report would be a disappointment, and the stock could easily sell off by $12. If there was a miss, which appears very unlikely, the stock would likely drop far more than $12.
I hold a core position in Nvidia that I plan to maintain as a longer-term investment for a while, but I also trade the stock in various shorter time frames. My plan is to reduce my trading position slightly before the report tonight. I have a good profit on this short-term trade and will lock some of it in before the risk of the earnings news.
If Nvidia gaps up on its earnings report, I likely will sell more of my trading position into the strength. I expect target increases on Thursday morning to fuel the upside. If the stock moves down on the report, then I'm very likely to add quickly to my trading position. It will depend on the actual news, but traders love to buy the dips in Nvidia and will almost always jump in fairly fast.
Stocks like Nvidia and Apple are places where many folks are happy to park their capital because they are so big and have performed so well. The actual valuation and performance don't matter that much, so weakness is almost always a good buy.
At the time of publication, DePorre was long NVDA.
