(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Options traders are betting shares of Nvidia Corp. (NVDA) will jump by 8 percent within days after the chipmaker reports on Thursday. The optimism ahead of results come as analysts forecast significant revenue and earnings growth for the company's fiscal first quarter of 2019. Additionally, strong results reported by Intel Corp. (INTC) and Advanced Micro Devices Inc. (AMD) are positive indicators for Nvidia.
Analysts estimate that Nvidia will report first quarter earnings rose by more than 93 percent to $1.65 per share, while revenue is forecast to surge by 52 percent to $2.95 billion, according to data from YCharts. Shares of Nvidia have risen by more than 139 percent over the past year, far outpacing the 11 percent gain of the S&P 500.
Options Trades Are Bullish
The long straddle options strategy is implying that shares of Nvidia will rise or fall by 8 percent by expiration on May 18 using the $250 strike price, placing Nvidia in a trading range between $230 and $270. But the calls heavily outweigh the puts by a ratio of 6.4 to 1, with 9,000 open call contracts to only 1,400 open put contracts. The open calls represent a dollar value of nearly $9 million, a large wager that the shares will rise.
The open interest for the $250 calls has been steadily increasing since the middle of April, as the open interest has nearly doubled since that time. Also, implied volatility levels are high, around 60 percent, almost 4.5 times greater than the S&P 500's level of 13.1 percent.
Analysts Are Bullish
Analysts seem to be moderately bullish on Nvidia. About 58 percent of the 36 analysts covering the stock rate it a "buy" or "outperform." Additionally, Raymond James noted that Intel's results are a good sign for Nvidia, suggesting strong growth in the chipmaker's data center segment. Furthermore, the analyst said AMD's strong earnings bode well for Nvidia's graphics cards segment. Intel and AMD reported in late April.
Full Year Strength
Analysts are also bullish on the full year, estimating earnings will rise by 38 percent to $6.79 per share, while revenue is forecast to climb by roughly 28 percent to $12.36 billion.
Nvidia seems to have the wind at its back going into Thursday’s results. But getting the huge 8 percent stock bump traders are looking for may require that Nvidia reports not only strong results - but robust guidance for the quarters ahead.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.