Nvidia Earnings: I Hope You’re Hungry ... For Nothing

My wife and I came to a sobering realization recently, from our friends.

“You guys are kind of haters.”

Caught in 4K. Hand up, mea culpa, it’s unfortunately true. We’ve spent many a walk lately hating on houses, movies we’ve seen, restaurants, etc. The weather..

It’s gotten to the point where we’ve installed a failsafe when we get too negative:

“anyway, here’s Wonderwall.”

By hating, I don’t mean dumping on anything and everything, and just being an a-hole. A hater is, dare I say, contrarian, and critically approaches everything regardless of broader sentiment. We have opinions while also recognizing our opinions aren’t the be-all end-all to a discussion. Proper, ethical hating.

We’re working on being better, but old habits die hard. Looking ahead to next week, I’m hating on Nvidia (NVDA) earnings.

Some clarification. I’m not dissing the stock, or any fundamentals that might come out. There are much smarter people than me doing that.

My giraffe (stick your neck out) take is that Nvidia’s post-earnings reactions don’t move the needle that much anymore, and we may be in for another ho-hum Wall Street reaction.

How did I come to this scorching hot take? Like Schaeffer’s Expectational Analysis, I looked at little bit of everything; some ‘eye test,’ some quantitative data, some sentiment analysis. Because I’m an ethical hater, I’ve got my case cleanly organized into three buckets: earnings history, technical setup, and broad market impact.

Put plainly, Nvidia’s post-earnings history just doesn’t jump off the page. The stock has now made four-straight post-earnings, next-day moves lower.

Pretty crazy considering there have been eight-straight top-line beats, and five (!) straight earnings triple plays. Our friends at Bespoke Investment Group were all over this, by the way.

Remember, C.R.E.A.M. (Capex Rules Everything Around Me).

Maybe this time its different. The 9% post-earnings NVDA move priced in by the options market for Thursday morning trading more than doubles the average post-earnings move in the last two years. That’s a sure a sign as any that this entire post could go up in flames in five days.

Looking beyond the one-day reaction, per FinViz I found that NVDA’s one-week return after the last eight reports sits at -1.9%.

Nvidia isn’t the plucky upstart #disrupting tech anymore. We all know the Nvidia modus operandi and how interconnected they are with hyperscalers. This isn’t a bearish case against Nvidia as a company or stock, just that Wall Street moves on quickly from its darlings, and the post-earnings history is starting to show that.

Despite a broader tech rally on Friday AND an “outperform” rating from BMO Capital, Nvidia limped into the weekend with a five-day losing streak and its worst weekly loss since late June. The shares are now 9.2% off their May 14 record high of $236.54. Getting a little close to correction territory…

If NVDA doesn’t get off the bus the next three trading days, I’d start watching the +10% year-to-date area and its 80-day moving average that are just below Friday’s close.

The $5 trillion market cap level can step up in the event of a disastrous selloff. If the stock chops around $220 leading up to Thursday, that’s conveniently right around its post-earnings levels from May 21. File that one away.

Remember, I’m hating on Nvidia’s post-earnings reaction and its impact on Wall Street, not the stock itself.

Overall, the long-term NVDA uptrend is intact, there are no relative strength concerns, and very little pessimism to be unwound. Business as usual for the king. But getting cozy at the top hasn’t historically portended to outsized post-earnings moves.

Options traders are bullish but making their plans with puts, with skew toward calls on a nearly 2-to-1 ratio on both 10- and 50-day timeframes. However, the 10-day, buy-to-open, put/call volume ratios sit in the 91st percentile of its annual range. So while calls rule out on an absolute basis, that high percentile indicates a ramp-up of put activity in the last two weeks.

I’m choosing to view a lack of major extreme one way or another as another example of the rather ho-hum sentiment around NVDA.

The October 180 put has seen the largest increase in open interest over this timeframe, while a straightforward weekly 8/28 220- and 227.50-strike calls are the top trades next week, with spread activity detected per Trade-Alert.

But Nvidia is some massive market-moving behemoth! As it goes, so goes Wall Street!

A lot can change in two earnings reports. Take a look at the impact of Nvidia earnings on the S&P 500 (SPX), Nasdaq-100 (NDX), and VanEck Semiconductor ETF (SMH).

The SPX and NDX have moved in lockstep with Nvidia six times after the last 10 reports. Back in May though, the SPX, NDX, and SMH all brushed off NVDA’s 1.8% loss and finished higher. Ditto for August of last year.

On average, the post-earnings move from all SPX, NDX, and SMH is negative, while Nvidia’s last 10 reports have yielded an average 0.3% move.

There’s no surefire signal here to go off of. The biggest trend from the table seems to be SMH, which has finished in concert with NVDA after eight out of the last 10 reports. SMH, by the way, has really separated from its leading holding this summer.

Maybe real Nvidia earning report is the tech friends you make along the way.

In the week leading up to Nvidia week, bond yields killed the vibe. WallStreetBets’ top trending stocks on Friday had NVDA as the fifth-most trending name, with most of the chatter neutral.

Maybe the last blue chip into the confessional each earnings season means most investors have a feel for the landscape already, and are thus less likely to be taken aback by any surprises in a quarterly report. Maybe after the rest of Big Tech raised all of the capex concerns earlier this summer, expectations are tempered.

Whatever the reason, Nvidia just doesn’t move the needle like it has in the past, or like some continue to think it does.

Wall Street in general is licking its wounds heading into next week. There’s a world where Nvidia (NVDA) is set up as the hero that quells all capex concerns and brings the AI trade roaring back. Or they become the latest capex casualty and push the broader market deeper to the brink.

The likelier answer, based on the above? A muted middle.

Anyway, here’s Wonderwall.

P.S.

Hating has to be productive. You can’t just dump on something without offering a better alternative. Marvell Technology (MRVL) is in the midst of a V-shaped rally and has finished higher the day after its last three earnings reports, including an 18.3% pop back in March.

If I’m betting on one name to make an outsized move next week, I’d consider MRVL.