Since the beginning of last year, Nvidia (NVDA) has become the “Super Bowl” of earnings season, and like the real big game, it always comes at the end of the season.
It’s the end of the third-quarter earnings season, and the market is once again nervously waiting for Nvidia’s earnings report after the close on Wednesday to see if the artificial intelligence and data center construction boom can continue. We will discuss post-earnings expectations and how to hedge if results fail to satisfy, which is similar to last quarter’s performance.
According to FactSet, analysts’ consensus estimate is for Nvidia to report earnings per share (EPS) of $0.75 on revenue of $33.13 billion. The focus of the market will be on the new Blackwell GPU. The GPU has reportedly already been ordered out, with demand expected to outstrip supply over the next 12 months, while there have also been recent reports of the product overheating. In fact, concerns about Blackwell began to emerge as early as the last quarter’s earnings report, when earnings per share beat expectations by 5%, but still maintained a remarkably high level.
In the last quarter, Nvidia’s growth rate fell from a staggering hundreds of percentage points. As a result, on August 28, the share price fell from about $130 to $101.50. Since then, Nvidia shares have recovered and topped $130, approaching $150. However, ahead of Wednesday’s earnings report, shares had fallen back to the mid-$140 range.
If the upcoming earnings report fails to get investors excited to “take off their hats” (in this case, the “SOX” acronym for the Philadelphia Semiconductor Index), could we be headed back to the key technical support level of $130 again? The current 50-day moving average is at $132.37.
In the most recent portfolio adjustment by Inside Edge Capital Management, LLC, we increased our position in NVDA’s core growth portfolio from 8% to 10%; In the dividend model, we raise our position from 2.5% to 3.5%. Note that NVDA, while paying a small dividend, accounts for more than 7% of the S&P 500. However, in our more flexible “Active Opps” portfolio, to hedge the risk of a possible pullback to $130, we are looking at hedging the slower portfolio.
We plan to buy a $140/130 put spread expiring on November 22, which is currently trading at $2.88. Specifically, we buy a $140 strike put and sell a $130 strike put for a total cost of $288 per spread and a maximum potential gain of $712 ($10 spread minus $2.88 premium paid = $7.12). Based on the number of Nvidia shares you own, determine the number of options you need to trade. For example, if you own 500 shares of NVDA and want to hedge your entire position to $130, you can buy five spreads for a total cost of $1,440 and a maximum possible gain of $3,560.
Still, I firmly believe that the AI boom is in its early stages, so this “insurance” may not be used and the premium will eventually be treated as a capital loss.
If NVDA can break above the 100% Fibonacci extension at $145.93, the Elliott Wave model shows the next upside target at $185.54. That goal could be reached when Nvidia meets Blackwell’s needs and drives quarterly revenue of $40 billion to $50 billion, which could come next year.