Nvidia (NVDA) Pre-earnings Analysis
The semiconductor giant, Nvidia, is set to report to earnings this week and their outcome is set to impact their entire industry. Over the last 12 months, Nvidia has become the face of artificial intelligence and innovation within its sector, which has exponentially moved its stock higher. The excitement around artificial intelligence drove the entire semiconductor industry to very tenacious multiples, so Nvidia’s earnings this week will either justify those multiples or it will crush them. Nvidia is currently trading at a price to earnings ratio of about 95, which is 6-8 times higher than the healthy average. This means Nvidia needs to report numbers far above expectations to bring down the multiple. Nvidia has done that repeatedly over the last 12 months so it’s not farfetched for them to meet the optimistic estimates. Between Q1 of last year to Q4, Nvidia’s revenue grew over 200% and their profits 12x. This brought their earnings per share 3.77 in Q4, and analysts are expecting the number to grow to 4.20 in Q1 (These coming earnings).
Given the demand for semiconductors and artificial intelligence chips, we expect Nvidia to meet expectations and continue their strong projections. All of Nvidia’s peers within the Industry have successfully met estimates and posted strong projections for the year, Nvidia will likely follow suit. One advantage Nvidia has over its competitors is also their involvement in cryptocurrency mining and video games. Cryptocurrency in specific has had a very strong start to the year so demand for processors has likely increased with mining.
Option chain analysis:
As of now, Nvidia’s options that expire this week on February 23rd, 2024 currently have an implied volatility reading of 155%, which translates to about a $79.00 move, which direction that turns out will depend on the earnings they post. If Nvidia stays flat then both sides of the option chain will be crushed.