Nvidia: Previewing the Leading Chipmaker's Earnings Report
Since the equity markets bottomed in late 2022, tech stocks have driven most of the general market’s gains. For example, over the past year, the Nasdaq 100 ETF (QQQ) is up a robust 45% while the S&P 500 Index ETF (SPY) is only up 24%. Drill down further into the performance metrics, and you’ll find that two main areas are driving market gains – mega-cap tech stocks such as the “Magnificent 7” and AI/semiconductor stocks. Currently, Nvidia (NVDA) is the undisputed market leader in both areas.
Nvidia is a leading technology company renowned for its graphics processing units (GPUs) and parallel computing solutions. Initially recognized for its contributions to the gaming industry, the company has become indispensable to the AI revolution due to the exceptional parallel processing capabilities of its GPUs. These GPUs excel at handling complex mathematical computations essential for machine learning and artificial intelligence tasks. Nvidia’s CUDA architecture and specialized hardware have become integral components in accelerating deep learning algorithms, enabling faster and more efficient training of AI models. Their GPUs are widely adopted in data centers and research institutions, playing a pivotal role in powering the computational demands of modern AI applications, from natural language processing to computer vision and autonomous systems.
EPS Due Date
The world’s third-largest company will report fourth-quarter earnings after the market closes on Wednesday, February 21st.
Estimates
Zacks Consensus Estimates suggest that NVDA will deliver a scorching triple-digit earnings growth rate over the next three quarters.
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ESP Score & Revisions
Zacks Rank #2 (Buy) stock Nvidia currently sports the coveted Zacks positive Earnings ESP (Expected Surprise Score. The ESP score looks to find companies that have recently seen positive earnings estimate revision activity. The idea is that the more recent information is, the more accurate and better predictor it is of the future. When a company has a Zacks Rank #3 or better and a positive ESP (like NVDA does), stocks produce a positive surprise 70% of the time while enjoying annual returns of 28.3% on average (according to our 10-year back test).
Implied Move
The implied options move for a stock refers to the market’s expectation of the potential price fluctuation of that stock based on the pricing of its options contracts. Specifically, it is derived from the implied volatility, a key component in option pricing models. If the implied options move is high, it suggests that market participants anticipate significant price swings in the underlying stock. Traders often look at implied volatility to gauge potential risk and adjust their strategies accordingly. The options market implies a move of + or – 11% for this quarter.
Earnings Surprise History
Nvidia has beaten Wall Street expectations for four straight quarters and has a positive average surprise of 18.99%. The company has surpassed EPS estimates, revenue estimates, and has upped guidance for four straight Q4 reports and seven of the past eight.
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Key Levels
The two primary levels for intermediate investors to watch are the rising 10-week moving average (~$600) and the all-time high of ~$750.
Image Source: TradingView
Seasonality & Historical Trends
February is the second-best month for Nvidia. 72% of the time the stock is higher in February, with an average return of 8.5% over the past 10 years. Over the last decade, its 2017 return of -7.1% was its lowest.
Bottom Line
Nvidia is the true market leader in the AI space. Whether you own the stock or not, investors should pay close attention to its Q4 EPS report.
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