Is the market too pessimistic about NVIDIA's earnings report?

NVIDIA will announce its earnings tonight, but market sentiment appears unusually cautious.

According to Goldman Sachs analysis, investors have relatively conservative expectations for NVIDIA's earnings report this time, generally believing that the growth rate will be lower than in previous quarters. Bank of America also pointed out that the market seems unprepared for any positive surprises that NVIDIA's earnings report might bring.

However, there are signs that the market may be underestimating the likelihood of NVIDIA delivering positive surprises.

The pricing in the options market, the consolidation of stock prices, and analysts' optimistic expectations all suggest that NVIDIA's earnings report could serve as a catalyst for a rise in stock prices.

Market Expectations: Insufficient Optimism, Excessive Caution

NVIDIA's stock has remained relatively flat over the past eight months, and investors seem to have mentally prepared for a relatively mild performance.

According to Goldman Sachs analysis, investors have relatively conservative expectations for NVIDIA's earnings report this time, generally believing that the growth rate will be lower than in previous quarters (typically exceeding revenue expectations by $1-2 billion, with next quarter guidance showing a sequential increase of $2 billion).

This is mainly considering that NVIDIA is in the transition period from the Hopper architecture to the Blackwell architecture. The market's focus will be on the performance outlook for the July quarter and comments on longer-term developments through 2026 and beyond.

Bank of America also pointed out that the market seems unprepared for any positive surprises that NVIDIA's earnings report might bring. The implied volatility of NVIDIA's stock price has dropped to its lowest level since mid-2023, and the cost of call options relative to put options is also at its lowest level since 2023. This indicates that investors generally expect NVIDIA's stock price will not experience significant fluctuations, and bullish sentiment is low.

As shown in the chart below, the put-call skew before NVIDIA's earnings report has reached its steepest level since 2023.

Analysis: Performance May Exceed Expectations, Blackwell is Key

Over the past six months, NVIDIA and the Philadelphia Semiconductor Index (SOX) have performed similarly. Bank of America believes that this may actually provide investors with an opportunity to increase exposure to AI stocks, as the "right-tail risk" in the AI sector remains significant.

Yardeni analysts expect that NVIDIA's earnings report will be stronger than expected and will boost the market. They believe that the market's concerns about DeepSeek potentially impacting AI infrastructure (including data centers) spending are excessive At the same time, the market is paying attention to the release progress of Blackwell GPU, which is initially scheduled for release in March 2024, and any delays could pose a major risk.

On the 22nd, Jensen Huang stated that the market's understanding of DeepSeek is "completely wrong." The release of DeepSeek R1 will not end AI computing demand; rather, it will stimulate the market's pursuit of more efficient AI models, thereby driving the development of the entire industry.

"It makes everyone aware that there is an opportunity to make models more efficient than we imagined. Therefore, it is expanding and accelerating the adoption of AI."

It is worth noting that the development momentum in China's AI sector is rapid. Over the past six months, Cambricon's stock price has risen over 221%, significantly outperforming NVIDIA.