AI leader Nvidia will disclose its third quarter financial report on Wednesday (20th) local time, which will also be its first financial report after being included in the Dow Jones Industrial Average. Therefore, this is highly likely to become another "barometer" for the US stock market.
According to BofA Global Research, the profitability of the chip manufacturer may pose a greater risk to the S&P 500 index compared to the next non farm payroll data, CPI, or Federal Reserve meeting.
At present, the rally driven by the "Trump frenzy" has come to a halt, and investors are beginning to refocus their attention on technology stocks and artificial intelligence (AI) trading.
Led by Gonzalo Asis, Bank of America strategists emphasize that Nvidia's latest performance report may determine the recent trend of the US stock market.
The US stock market has been highly concerned about the impact of elections, interest rate fluctuations, and the Federal Reserve, but the options market tells us that Nvidia's financial report remains a very important factor for the entire market, "they wrote in their latest report.
Analysts point out that according to the chart below, the implied volatility of the S&P 500 index is consistent with Nvidia's own implied volatility, indicating that the risks brought by the financial report are higher than the upcoming employment and inflation data or Federal Reserve meeting.
The options market has assigned higher market risk to Nvidia's profit allocation, rather than other events that may affect the market, such as the release of the next non farm payroll report, the Consumer Price Index (CPI) report, or even the Federal Reserve's December policy meeting, "Asis and his team wrote.
Nvidia will be the last company among the "Big Seven" technology giants to announce its performance. Analysts surveyed by FactSet generally expect the quarterly sales of this chip manufacturer to reach $33.1 billion, a 10% increase from the previous quarter and an 83% increase from the same period last year.
Undoubtedly, Nvidia is the "most dominant stock" in the US stock market, bringing a 20% return to the S&P 500 index over the past year. Bank of America analysts wrote that the company is expected to drive nearly 25% growth in earnings per share (EPS) for the S&P 500 index in the third quarter.
That's why Asis and his team have warned that if Nvidia's performance released on Wednesday is disappointing, the risk of "single stock fragility" associated with the company will increase.
But for investors looking to hedge against downside risks, Bank of America has stated that if the tech dominated Nasdaq 100 index falls by around 3% this week, put option spreads may provide "attractive returns".
Finally, it is worth mentioning that before Nvidia released its financial report this week, there was also bad news: its new generation Blackwell artificial intelligence chips are once again facing delayed delivery issues.
According to reports, this AI chip has serious overheating issues in high-capacity server racks. And this defect has forced Nvidia to modify the rack design multiple times, which not only limits GPU performance but may also damage hardware. Their customers are therefore concerned that these technical issues will delay the processor deployment process in the data center.
Since Nvidia launched the Blackwell chip series in March this year, delivery times have been repeatedly postponed. From the initial second quarter of this year to the fourth quarter expected by CEO Huang Renxun, and now according to media reports, the improved Blackwell GPU is expected to be shipped as early as the end of January next year.