Market attention this week is centered on AI leader NVIDIA (NVDA.US), which is scheduled to report its fiscal first-quarter 2027 earnings after the U.S. market close on Wednesday, May 20th. As a core bellwether influencing the technology sector and the broader market direction, NVIDIA's performance has transcended the scope of a single stock, significantly swaying overall market sentiment. On the eve of the earnings release, NVIDIA's stock price experienced a notable pullback, placing bullish investors in a challenging position as they navigate against the prevailing trend.
NVIDIA's stock declined on Monday, falling more than 6.5% from its high last Thursday. This created another difficult trading session for NVIDIA option investors, with a large number of popular short-term call contracts seeing their value sharply depreciate or even expire worthless. Data compiled by SpotGamma shows that as of midday Monday, over 15% of NVIDIA option contracts traded were set to expire at the day's close. Among the most active contracts were calls with strike prices of $225 and $222.50, each with trading volumes exceeding 220,000 contracts. Notably, these contracts were in profitable, in-the-money territory as recently as last Friday but became worthless within a single trading session due to the stock's retreat. This scenario mirrored the previous Friday, where $114 million in premium for call options with a $235 strike price evaporated as NVIDIA's stock fell, resulting in significant losses for speculative short-term traders.
Despite the weakening stock price and repeated short-term option "blow-ups," bullish sentiment has not fully capitulated. On Monday, NVIDIA option trading volume ranked fifth in the market, trailing only the benchmark indices and Tesla, with over 3 million contracts traded. The total premium value of these options surpassed $1.3 billion, with call options accounting for a substantial $1 billion of that total. According to data from ThinkOrSwim, NVIDIA call option volume on Monday was more than double that of put options. However, most of these calls traded at the bid price or lower, suggesting they were likely being sold by investors rather than actively bought. Nevertheless, there were signs of steadfast bullish conviction. Four large block trades in NVIDIA options that day involved substantial purchases of expensive, in-the-money call options expiring this Friday, with each individual trade valued at no less than $10 million. This indicates that some professional investors remain optimistic about NVIDIA's upcoming earnings report and are willing to bet on a potential stock rebound driven by better-than-expected results.
Data from Cboe LiveVol suggests traders are anticipating a potential stock price move of around 6.25% following the earnings release, which is in line with typical expectations but higher than the average actual move of 3.2%. For investors currently holding call options, the situation is particularly tense. Historical data shows NVIDIA's stock has declined following its last three earnings announcements, including a 5.5% drop after the February report this year, perpetuating the shadow of a potential "earnings curse." The challenge for bulls to stage a comeback with this report is evident.
The significance of NVIDIA's earnings cannot be overstated. Ultimately, the option market activity ahead of the report reflects a fundamental market divergence regarding the future trajectory of this AI leader. After the market closes on Wednesday, the earnings release will provide a temporary answer to this bull-bear battle. NVIDIA's performance will not only impact its own stock price but is also poised to serve as a crucial "bellwether" for the broader AI sector and technology stocks, guiding subsequent market trends.
Market consensus expects NVIDIA to report first-quarter earnings per share (EPS) of $1.76 and revenue of $78.75 billion, significantly higher than the $0.96 EPS and $44.06 billion revenue reported in the same quarter last year. Data center revenue is anticipated to reach $72.85 billion, far exceeding the $39.11 billion from the prior year. In the lead-up to the report, several major Wall Street banks have expressed optimism and raised their price targets for NVIDIA: Bank of America increased its target from $300 to $320; Wells Fargo raised its target significantly from $265 to $315; UBS lifted its target from $245 to $275; and Morgan Stanley raised its target from $260 to $285.
It is noteworthy that NVIDIA's CEO Jensen Huang recently concluded a visit to China alongside U.S. officials. His comments during the earnings call regarding the company's collaboration and strategic plans in China are expected to be a focal point for the market. Previous reports indicated that U.S. authorities had approved purchases of NVIDIA's H200 series chips by major industry players like Alibaba, Tencent, and ByteDance, which previously helped push NVIDIA's stock to record highs and its market capitalization above the $5.7 trillion mark. However, UBS analyst Tim Arcuri noted that investors have maintained a cautious stance in recent months, suggesting that only an absolutely stellar earnings report could fully bolster market confidence.
At Monday's close, NVIDIA's stock was down 1.33% at $222.32, bringing its year-to-date gain to 19%.
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