Nvidia Q1 FY2025 Results: What if Earnings Disappoint?

21-05-2024

 

Nvidia has been the shining light of many portfolios over the past year, having outperformed analysts’ expectations quarter after quarter.

Their next earnings round this Wednesday (22 May 2024) will be the focal point for AI investors watching the ever elusive $3tn valuation mark once heralded by tech figureheads Apple and Microsoft.

The steadfast demand for Nvidia’s H100 and soon-to-be-released H200 Blackwell GPUS by companies developing artificial general intelligence systems has catapulted their net-income more than 8-fold in the past year from $1.41bn in January 2023 to $12.29bn in Q1 2024. Many market participants question how much further their valuation can go given the supply-side constraints and increased competition throughout the sector as bystanders rush into this newly emerging marketplace.

Having envisioned a future market for GPUS, CEO Jensen Huang has a track-record of inspiring confidence into his investors. Following their 5 historical stock splits and current all time high valuation, announcement of a potential future stock-split which would make ownership of the stock more feasible for smaller investors would not come as a surprise at their upcoming earnings call.

What is clear is that this stock has driven much of the S&P’s returns year to date. If it continues to excel, the stock may soar to even greater heights. However, if earnings and outlook are in line with already lofty expectations, there could be a significant disappointment and a sharp downwards revaluation.

If you believe that earnings may disappoint analysts’ expectations, then you may consider taking out a put spread in order to profit from a fall in the price of the underlying.

 

(Chart displaying Nvidia stock price over a 6 month period)

Put Spread

buy 1 NVDA 07-JUN-24 $930 PUT @ $41 
sell 1 NVDA 07-JUN-24 $900 PUT @ $29

Trade Idea

Buy a Put Spread

Put Spread

Total outlay $1200 per 1 lot  

Maximum loss of $1200 if value of underlying is greater than $930 at expiration.   

Maximum profit of $1800 if value of underlying is lower than or equal to $900 at expiration. 

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