Trade Of The Week: Nvidia headed for $1000 milestone?

• Nvidia almost ↑ 90% year-to-date

• Will chipmaker see new all-time high?

• Pay close attention to Nvidia’s datacenter revenue forecasts

• Shares could move 8.6% ↑ or ↓ post earnings on Thursday!

• Nvidia last earnings saw S&P 500’s biggest 1-day jump in over 12 months

In case you missed the memo, Nvidia is set to announce its latest earnings this week!

This is a major event for markets considering how the chipmaker is at the heart of the AI buzz. Investors will be looking for another round of stellar results to justify its whooping $2.3 trillion valuation.

Since the last earnings release in February, Nvidia shares have climbed about 37%, taking year-to-date gains to almost 90%!

• When will earnings be published?

Nvidia will report its earnings for the first quarter of its 2025 fiscal year (3 months ending April 30th) after US markets close on Wednesday 22nd May.

• Market expectations:

The darling of AI and tech investors is expected to post earnings of $5.53 compared to $1.09 a year ago.

Quarterly revenues are seen rising to $24.6 billion from $7.2 billion in the prior year – equating to a 242% increase!

Beyond the backward-looking numbers, markets will also be obsessed about what Nvidia conveys about its potential earnings in the future.

Markets are particularly focused on its revenue from data centers, which now account for over 80% of Nvidia’s total revenue.

Datacenters have now overtaken the gaming sector as the leading contributor to Nvidia’s total revenue.

Revenue from datacenters are expected to reach US$ 30 billion by 2026, which is a massive jump from the US$ 4.3 billion posted in the first quarter of its 2024 fiscal year.

Markets may need to see such projections revised higher in order to justify an even-higher price for this stock, based on its future earnings.

Otherwise, if markets can’t reconcile Nvidia’s 90% year-to-date gains with less-than-expected future earnings, markets may have zero qualms about triggering a massive selloff for this stock.

After all, markets are forward-looking in nature: today’s price reflects tomorrow’s hopes (or disappointments).

• What is the big deal?

The company’s earnings and forward guidance may serve as a key gauge for the AI hype.

After delivering knockout results last quarter, Nvidia was able to satisfy investor expectations. However, this earnings season is showing that investors are becoming harder to impress.

Still, this could be one of the biggest moving events for the S&P 500 in 2024.

Looking at the charts, the S&P 500 saw its biggest 1-day percentage move in over 12 months back on February 22nd.

This was one day after Nvidia released its Q4 earnings with the S&P 500 soaring over 2%.

To be clear, we are not stating that history will repeat itself but simply highlighting how much muscle Nvidia has to move US markets and even other stock indexes globally.

• Potential challenges…

Growing competition from other chipmakers and even its biggest customers – Amazon, Meta, Microsoft, and Alphabet.

Threat of disruptions from its major chip supplier Taiwan Semiconductor, after the deadly earthquake in Taiwan last month.

US-China Chip war: Can Nvidia’s earnings take such geopolitical risks in stride?

• How will Nvidia react to earnings?

Markets are forecasting an 8.6% move, either Up or Down, for Nvidia stocks on Thursday post earnings. 

• What does this mean for prices?

An 8.6% move up from $923 will take Nvidia’s shares to fresh all-time highs beyond the $1000 level.  

While an 8.6% move down will send prices back below $850.

• How about wider markets?

Instruments that have a strong correlation with Nvidia could see some action.

Nvidia has shown a 70% correlation with the Nasdaq 100 and over 60% correlation with Taiwan Semiconductor (US listed) in the past 12 months.

But digger deeper, over a rolling 5-day period from the past 20 years:

• S&P500: +0.94
• Texas Instruments: +0.84
• Broadcom: +0.84
• QUALCOMM: +0.75
• Advanced Micro Devices: +0.40
• Analog Devices: +0.70
• Micron Technology: +0.60

• The bigger picture…

With a $2.3 trillion valuation, an 8.6% move in the price of its stock is almost $200 billion!

This is bigger than the entire market caps of many large companies in the S&P 500 and Nasdaq 100!

Heck, it’s even bigger than some of its competitors like Texas Instrument, Analog Devices, and Micron among others.

• Ultimately a solid set of earnings along with a forward guidance that excites investors could push prices to all-time highs beyond 973.75.

• If the chipmaker disappoints, the stocks could find itself on a slippery decline with the 50 SMA acting as the first point of interest.