Options show Nvidia's earnings could lead to a $200 billion swing in the stock

NEW YORK (Reuters) – Traders are pricing in a big move for Nvidia shares after the chipmaker reported earnings on Wednesday, although volatility expectations are calmer than in the past, U.S. options markets show.

Nvidia options are poised for an 8.7% swing in either direction by Friday, according to data from options analysis firm Trade Alert. This would translate into a market capitalization swing of $200 billion — larger than the market capitalization of about 90% of the companies on the S&P 500.

Although huge by most measures, this implied move would be far less than the 16.4% jump Nvidia shares took after the company's last quarterly earnings report. It is also less aggressive than the average 12% moves identified by traders over the past eight quarters.

“Volatility and expectations were quite a bit higher last time,” said Chris Murphy, co-head of derivatives strategy at Susquehanna Financial Group.

Nvidia, whose stock has risen about 87% this year, is seen as a leader in the booming artificial intelligence industry and has a market capitalization of about $2.3 trillion, making it the third-largest company on Wall Street, after Microsoft and Apple. Wall Street is betting on a strong quarterly report from Nvidia.

Investor interest has expanded to other beneficiaries of artificial intelligence in recent months.

“The benefits of AI are expanding into energy, commodities and utilities,” Bank of America strategists, including Gonzalo Assis, wrote in a note Monday. “It's not just about NVDA anymore.”

Strategists at Bank of America expect the company to deliver 9% growth in S&P 500 earnings over the next 12 months, compared with 37% over the past 12 months.

This doesn't mean the next earnings report is expected to be quiet for the company's stock price.

Matt Amberson, founder of options analytics service Orats, noted that the implied volatilities of out-of-the-money calls are roughly equal to those of out-of-the-money calls. This suggests that options traders are not writing off the potential for further upside for the stock, despite its huge gains year-to-date.

“Traders expect upward moves to be as violent as downward moves,” Amberson said.

Nvidia is expected to report earnings of $5.59 per share and a rise in quarterly revenue to $24.65 billion from $7.19 billion last year, according to LSEG data.

The downturn in Nvidia could test investors' resolve regarding the broader AI trade, said Steve Sosnick, chief strategist at Interactive Brokers.

“Yes, the rally has been broadened, but I'm not sure how strong it will be if Nvidia sells aggressively,” he said.

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“There is a lot that depends on AI trading,” Sosnick said.

(Reporting by Saqib Iqbal Ahmed; Editing by Ira Iosibashvili and Lincoln Feast)