Score One for the Options Traders on Nvidia (so far)

As I write this at 10:30 EDT, Nvidia is trading at $483.  We have no idea where it will close – and I can come up with all sorts of potential scenarios for a pre-holiday session when traders’ minds increasingly turn to family, food, and football (not necessarily in that order) over markets – but as of now, the options market correctly called the reaction to Nvidia’s (NVDA) earnings.  As we noted at this time yesterday:

The IBKR Probability Lab shows a peak in the $482-485 range for options expiring on Friday.

This morning’s dip comes despite yet another blowout quarter from NVDA.  We’ve all heard the advice to under-promise and over-deliver, but it can start to work against you if people come to routinely expect that sort of thing.  It’s something we’ve become accustomed to with NVDA.  That’s one of the reasons why even after reporting EPS of $4.02 and revenues of $18.1 billion, well above the respective consensus estimates of $3.37 and $16.1 billion, the initial reaction was somewhat of a yawn.  There was a dip when headlines reported concerns about the company’s sales in China, but it is important to note that there was never a period when the stock mounted a meaningful rally.  But then again, one can easily assert that NVDA’s recent 25% rally was already pricing in one heck of a result.

The question for investors is whether a company with a $1.2 trillion market cap can continue to post exponential growth, and if so, for how long?  The market seems to be betting that the growth can continue, and perhaps not overpaying too dramatically for it.  Thanks to yesterday’s results, the trailing P/E was cut nearly in half from 115 to 62.  Forward P/E is a bit of a moving target right now, while analysts in the process of updating their estimates, but the current 40-ish level is certainly robust.  But is that too aggressive when the much larger and slow-growing Apple (AAPL) sports a forward P/E of 29?  At those levels, the PEG ratio for AAPL is over 3, while NVDA’s is under 1.  Buyers of NVDA at current levels are still betting heavily that this rapidly growing behemoth can continue its AI-powered pace into the future.

Speaking of AI and a topic we also discussed this week, the OpenAI / Microsoft (MSFT) took another turn today.  After some changes to the board at OpenAI, Sam Altman returned to the smaller company.  MSFT went up on the news, just as it did when it looked as though Altman was joining the software giant.  The hopes are that OpenAI will now be a better partner for MSFT after the shakeup.  Quite the win-win indeed.

Have a Happy Thanksgiving