Nvidia Pre-Earnings Analysis
In a twist of events, Nvidia is under pressure ahead of their earnings report this week after multiple prominent figures are selling shares of the company or taking a bet against it. SoftBank, a major investment bank known for early bets on technology companies like AliBaba, Uber, DoorDash, and more, stated that they sold their entire share of Nvidia with the reason that they’re allocating capital to other large scale AI investments. This likely means that they’re not necessarily taking a negative view on AI, they’re just moving capital elsewhere in the space. As for Peter Theil, one of the most influential tech investors known for cofounding PayPal and Palantir, we don’t know exactly why he sold his position, there’s no confirmed reason for his Nvidia exit. However, most believe the move was driven by growing concerns over an AI-driven market bubble and elevated valuations.
Is there a bubble?
There are many stocks on the market that are argued to be in bubble territory and we’ve seen the market punish many names in recent weeks through a correction. The majority of large cap tech and high risk innovation stocks have seen double digit percentage declines to alleviate the extreme valuations, but the sell-off doesn’t feel particularly “panic-ky”. And even with the negative news on Nvidia, the stock is still trading very close to record highs, likely as investors await earnings for further clarity.
What’s in focus for earnings:
For Nvidia’s earnings, the big things to watch are overall revenue and how much momentum is coming from their next generation chip. This new chip cycle is expected to be a major growth driver, so any details on early demand, production ramp, and how much revenue it could add over the next few quarters will be crucial. Nvidia is already pulling in massive data center revenue, but investors want to see that the next chip keeps that story going. Their outlook is also a huge focus, especially after high profile sales from Thiel and SoftBank…because strong guidance would help push back against the idea that Nvidia is fully valued and show that the growth runway is still wide open.
The AI boom:
The chips that Nvidia makes are at the heart of the AI revolution, which is still arguably at the very beginning stages. Every company from small to large will need AI technology to stay relevant, the same way we need the internet in the modern world. As long as Nvidia’s technology is the strongest and most efficient in the market, the company’s dominance will continue. Devices like watches, glasses, phones, other new handhelds, and even cars will need advanced AI chips, so the future is really just starting to open up. We’re talking about an entire ecosystem of everyday products powered by on-device AI, all relying on high performance chips to function. If Nvidia keeps leading the pack in speed, efficiency, and power, the demand for its hardware could expand far beyond data centers and into nearly every part of modern life.
Note: Demand will eventually slowdown and the “top” of the stock will come ahead of that slowing down, but we believe that SoftBank’s and Peter Thiel’s exit from the stock here is premature. There is still 1-3 years to this Nvidia rally, we just need as strong positive catalyst about AI or perhaps strong earnings to restart the fire.
Risk:
The biggest risks for Nvidia center around valuation, competition, and policy. The stock is priced for perfection, which means even a slight slowdown in revenue growth, chip demand, or guidance could trigger outsized volatility. Competition is also heating up as AMD, Intel, and a wave of startups push aggressively into AI hardware, while major customers like Apple, Google, Amazon, and Microsoft continue developing their own in-house chips, reducing long term reliance on Nvidia (which doesn’t seem to be the case for now). On top of that, export restrictions and geopolitical tensions, especially involving China, remain a major swing factor for future revenue. Nvidia is still the clear leader, but the higher the expectations climb, the less room there is for error.
Option chain analysis:
Looking at its option chain, $NVDA’s January 16th expiration currently reflects an implied volatility reading of 51%, which translates to about a (+/-) $32 move from the underlying stock by expiration. The direction largely depends on the outcome of their earnings and what’s said on the call.
Disclaimer: This article is for informational and educational purposes only and does not constitute financial advice. Investing involves risk, including the possible loss of capital. Always conduct your own research or consult with a licensed financial advisor before making investment decisions.
Hyper Stocks and its contributors may hold positions in some of the securities or assets mentioned above. These positions are subject to change without notice. Any opinions expressed reflect current views at the time of writing and are not guarantees of future performance. Past performance does not guarantee future results.