As one of the biggest focuses of this financial reporting season, Nvidia will release its results on Wednesday.
For this chip giant with the highest market heat and record breaking trading volume, enthusiastic investors have invested heavily in the derivatives market, which will also be a test of the quality of the AI dominated bull market in this round. Many institutions have recently repeatedly warned that the market led by technology giants is moving towards the Internet foam period at the beginning of this century.
Profit or surge by more than 7 times
Since the beginning of this year, investors have been excited about the commercial potential of artificial intelligence, causing Nvidia's stock price to rise by nearly 50%, with a market value growth of over $500 billion, surpassing Google and Amazon to become the third largest company in the United States by market value, second only to Microsoft and Apple.
Keith Lerner, Chief Market Strategist at Trust Advisory Services, said, "This year, the technology sector has continued its good performance since last year, with Nvidia at its core, and the development of artificial intelligence is full of hope."
According to the schedule announced by the US Stock Exchange, Nvidia will announce its results for the previous quarter on Wednesday of this week. Currently, Wall Street expects quarterly revenue to increase from $6.05 billion a year ago to $20.378 billion, with an EPS of $4.56 per share, an increase of over 700% compared to the same period last year.
Kevin Landis, portfolio manager at First Capital, pointed out that given the company's size and importance to the artificial intelligence story, performance may be crucial to market sentiment. "Every time the stock market rises sharply, there will be one of the most popular stocks leading the market. Without a doubt, Nvidia is now dominating the entire market's psychology."
Investors are preparing for stock price fluctuations after the financial report is released. According to data from options analysis service company ORATS, the financial report will cause Nvidia's stock price to fluctuate by up to 11%, reaching a new high in nearly three years, far exceeding the historical average volatility of 6.7% for the stock.
Tom Hainlin, senior investment strategist at United Bank Wealth Management, believes that the positive level of Nvidia's forward-looking guidance may stimulate more artificial intelligence optimism and continue the market rebound. "Currently, investors are paying attention to the visibility of profit growth, which is crucial for Nvidia to achieve more returns."
Internet foam warning
The craze for technology stocks has spread across almost all market groups. A survey by global fund managers at Bank of America shows that institutional allocation to the technology industry has reached a new high since August 2020. Individual investors seek greater returns through derivatives such as options, and according to data from Cboe Global Markets, bullish demand is approaching the most distorted level since the 2021 Meme stock boom.
Boris Schlossberg, macro strategist at BK asset management, said in an interview with First Financial that a survey of fund managers at Bank of America shows that technology stocks have once again become the most crowded trading. In fact, these tech giants may benefit from further inflows of over-the-counter funds, "under the influence of fear of missing out (FOMO) psychology, the larger the market value, the more people may be optimistic."
Michael Hartnett, a star analyst of Bank of America, warned in the report that all asset foam are based on a good and solid economic foundation, and cheap and falling interest rates are the prerequisite for the formation of asset foam. However, the current interest rate gap between US high rated bonds and US treasury bond bonds narrowed to 86 basis points, the lowest point since 2020, while the concentration of US stocks reached the highest point since 2009.
JPMorgan Chase stated that market breadth is becoming increasingly unhealthy. After calculation, strategist Khuram Chaudhry of the institution found that the shares of the top ten MSCI US index components were slightly lower than the historical peak of 33.2% set in June 2000.
The First Financial News reporter noticed that the valuation level of the US stock market is currently in the historical high range. The 12 month forward P/E ratio of the S&P 500 index has exceeded 20 for the first time since the beginning of 2022, far exceeding its five-year and ten-year averages. Driven by technology giants, the forward P/E ratio of the Nasdaq 100 index is higher, exceeding 26 times.
Extreme bullish and speculative sentiment may conceal risks. According to an article published by Seeking Alpha, some individual stocks have shown clear signs of gamma squeezes in trading, with the put to subscribe ratio at the low end of the historical range, and implied volatility rising and tilting towards the subscription side. Gamma squeezing is a self reinforcing behavior in which investors buy out call options, leading market makers to hedge against the underlying stock by purchasing it, thereby pushing up the stock.
Although this can be seen as a catalyst for a bull market, it can also trigger volatility under excessive speculation, as typically, once the implied volatility of call options is too high, the "gamma squeeze" process will be exhausted, leading to a significant decline in stocks. The latest example is the trend of SMCI, which rose more than threefold and broke through $1000 within a month. Last Friday, its stock price surged and fell, hitting nearly 20%.
It is worth noting that investors are not lenient towards stocks with lower than expected performance. As one of the "seven giants" of technology last year, Tesla's stock price has fallen by more than 20% since the beginning of this year, ranking third from the bottom among all S&P 500 index components, indicating the continuous fermentation of negative emotions brought by its forward-looking guidance.
Therefore, if Nvidia's performance fails to meet market expectations, it may trigger market turbulence and short-term adjustments. Jiaxin Wealth Management wrote in its market outlook report that poor financial reports will become a catalyst for profit taking in technology, especially in the fields of artificial intelligence and chips. If combined with the push of the Federal Reserve's delayed interest rate hike on bond yields, there will be doubts about whether US stocks can still face it calmly.