Nvidia Q3 results preview: Wall Street traders brace for $300 billion swing in market value, stock up 200% YTD

Nvidia Q3 Results Today: Artificial intelligence (AI) chipmaking giant Nvidia Corp will announce its third-quarter (Q3) earnings results today amid a broader drag in Wall Street's frontline indices. Wall Street traders are preparing for a potentially mammoth stock swing ahead of the earning report by the world's most valuable company. Nvidia has grown into a $3.6 trillion behemoth because of the nearly insatiable demand for AI chips.

Nvidia stock has nearly tripled for the year, and pressure has grown for it to show it can keep leapfrogging past analysts’ already high expectations. The AI poster child has made it one of the most influential stocks in the market, whose movement can almost singlehandedly alter the S&P 500’s direction.

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Trading in the options market suggests Nvidia’s upcoming profit report is the most anticipated event in 2024, more than even the US Federal Reserve’s upcoming meeting on interest rates. According to a report by Bloomberg, the options-implied move for Nvidia shares the day after earnings is about eight per cent in either direction. That would equate to a $300 billion swing in market value — bigger than 25 companies in the S&P 500 index. 

Nvidia’s stock has rallied nearly 200 per cent so far in 2024 and its reports have been the biggest event on the earnings calendar for more than a year. The shares fell 1.9 per cent on Wednesday ahead of the chipmaker’s fiscal third-quarter earnings, due after markets close, and there’s more uncertainty than normal about how the results and guidance will play out.

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Nvidia Q3 Results Preview

Wall Street is abuzz about what to expect from Nvidia's newest product line, Blackwell. Nvidia has said that the new chips will contribute several billion dollars in revenue in the fiscal fourth quarter. At the same time, Chief Executive Officer (CEO) Jensen Huang described demand for the chips as “insane.” However, production delays have made modelling supply even harder.

Wall Street analysts say there is a big unknown around Blackwell's capacity. The CEO has established much credibility, but the bar is very high. It will likely be challenging for Nvidia to give blowout guidance for next quarter. The questions around Blackwell have led to a widespread in analyst expectations for the fiscal fourth quarter that ends in January. 

According to estimates compiled by Bloomberg, the consensus is at $37.1 billion, with the gap between the highest and lowest projections at more than $7 billion. Nvidia typically provides revenue guidance for the upcoming quarter with its results. Part of the gap in analyst forecasts is that some expect customers to delay purchases of Blackwell’s predecessor products, Hopper, in anticipation of the newer chips.

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Morgan Stanley analyst Joseph Moore calls Wednesday’s results a “transitional” quarter. Moore wrote that Nvidia is likely to give a conservative forecast that’s only slightly ahead of the average analyst estimate, which should satisfy most investors as long as everything points to a very strong full-year Blackwell ramp.

The chipmaker’s biggest customers, including Microsoft Corp., Alphabet Inc., Amazon.com Inc., and Meta Platforms Inc., all pledged in their most recent results to increase capital spending in the year ahead. Nvidia has dethroned Apple as the most valuable company. Shares of Nvidia, Apple, and Microsoft have an outsized influence on the richly valued technology sector and the broader US stock market, accounting for about a fifth of the S&P 500 index's weight. 

The stocks are heavyweights and push the indices higher on a rapid surge in share prices. Nvidia's massive gains have helped boost the stock's appeal for option traders. According to data from options analytics provider Trade Alert, the company's options are among the most traded on any given day in recent months. 

However, with a history of beating estimates in a big way, thanks to unbridled demand for its accelerator chips, Nvidia may need to do more than provide assurances that Blackwell’s ramp-up remains strong. In the past five quarters, Nvidia sales have beaten consensus by an average of about $1.8 billion, according to data compiled by Bloomberg. If Nvidia results fall short of that bar, it could spell trouble for the stock, trading close to a record high.

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Meanwhile, Bloomberg reported that Nvidia Corp would soon be part of Wall Street's oldest three main equity benchmark indices, displacing no less than Silicon Valley giant Intel. Nvidia will replace rival Intel Corp. in the 128-year-old Dow Jones Industrial Average. It was reported that the stock will be included from November 8.

It added that this addition to the blue-chip index is a testament to the power of the AI-driven rally that’s pushed the chipmaker up 900 per cent over the past two years. The Dow Jones Industrial Average was the only major US equity benchmark that didn’t hold Nvidia until now. Further, Sherwin-Williams Co. is also joining, replacing Dow Inc.

The Dow’s price-weighted methodology has occasionally been an impediment to technology companies that eschewed splits and whose shares often traded above $1,000. Until recently, that included Nvidia. The company has split its stock two times in the past four years, the most recent of which was a 10-for-1 swap that took effect in June.

With inputs from Bloomberg, Reuters