Might NVDA Move the Needle?

We came into this week looking at three well-known potential market catalysts.  The first, this morning’s Core PCE report, proved not to be a market mover.  The third is not until Friday morning, when Fed Chair Warsh delivers his address to the Jackson Hole Economic Policy Symposium.  That leaves us focused on the second, Nvidia’s (NVDA) earnings report after this afternoon’s market close.  Let’s see how options markets are pricing the potential outcome.

First, a brief digression about the PCE report.  Core PCE is the Federal Reserve’s preferred inflation measure.  That may change in the future if the Chair can convince the FOMC to shift to capped inflation measures, but let’s stay in the present.  July’s Core PCE reading came in as expected with a 0.2% monthly increase, up from last month’s 0.1%.  The headline reading was slightly worse than expected, with that also coming in at 0.2%, above the 0.1% consensus and up from last month’s -0.1%.  Frankly, neither moved the needle.  Rate hike expectations for September reduced slightly, with the CME FedWatch showing a 38% chance for a hike and IBKR Prediction Markets showing a 31% “Yes” for a bump. 

My view all along has been that the Chair and much of the committee are loath to consider a rate hike before the midterm elections – meaning not before the December meeting – unless circumstances clearly warrant immediate inflation-fighting action.  Today’s PCE report does not suffice. 

Thus, it’s on to NVDA in our search for a potential market mover.  Every quarter I have stated my belief that NVDA is the single most important earnings release each quarter because (1) its timing makes it stand out, and (2) it is literally intertwined with all the other significant AI plays. 

Regarding point 1, while all megacap earnings have the ability to move markets, the rest of the Mag7 is often clustered together.  In July, for example, Microsoft (MSFT) and Meta Platforms (META) reported almost simultaneously, with the index effects of MSFT’s 15.5% rally blunted somewhat by META’s 8% drop.  There is little to stand in the way of NVDA’s post-market reaction. 

As for NVDA being intertwined with other significant AI plays, that has become increasingly obvious as the company becomes more involved with suppliers, customers, and even potential competitors.  I’ve seen the company described as the central banker to the AI business, and I believe that to be an apt description, regardless of whether you view that as cementing a key role in the industry or creating a dangerous web of interlocking deals.  We’ll learn which is the eventual outcome as time goes on.  For now, it’s about this quarter’s earnings, revenues, and guidance. 

Regarding those numbers, expectations are for revenues around $92.1 billion, adjusted EPS of $2.09, and gross margins of a whopping 75%.  More focus will likely be paid to guidance, which should show revenues and gross margins holding roughly steady next quarter.  The questions will be not only whether the company can offer guidance that exceeds those figures, but also whether today’s guidance exceeds the “whisper numbers” that tend to exceed the published figures.  Even so, we have seen NVDA and other companies dip after earnings even after exceeding all expectations.  My theory is that because NVDA is already a core holding in so many portfolios, if not an overweighted one, even an across-the-board beat can’t cause the flood of new institutional money required to push the stock even higher.

Looking at the options market, we see a relatively symmetrical probability distribution for contracts expiring on Friday.  The peak of $205-$207.5 is slightly below the current $211 price, but not enough to describe it as major risk aversion. 

IBKR Probability Lab for NVDA Options Expiring August 28^th, 2026

Source: Interactive Brokers

At-money options expiring Friday show an implied daily volatility just below 6%.  That’s a bit above the 6-quarter average post-earnings move of 3.82% (-1.77%, -5.46%, -3.15%, -0.79%, +3.25%, -8.48%), but not worrisomely so.  Skews are generally flattish around the current level, though there is a perceptible downside skew showing modest risk aversion.  Considering that NVDA closed lower after 5 of its last 6 earnings reports, that seems prudent.  Whether tomorrow’s reaction to today’s NVDA earnings will be sufficient to awaken the markets from their late-summer snooze remains an open question.

Skews for NVDA Options Expiring August 28^th (green), September 4^th (purple), September 18^th (yellow)

Source: Interactive Brokers