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Earnings Preview: Checking in on the Tech Sector with NVDA

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May 8, 2017
Nvidia Quadro Chip
iStockphoto.com/Chetroni

Nvidia Corp. (NVDA) reports first-quarter earnings for fiscal 2018 after the bell on Tuesday, May 9. The company manufactures graphics processor technologies for use in computing, consumer electronics, and mobile devices. Its products are used extensively by computer gamers as well as being increasingly used in the fields of artificial intelligence and autonomous driving. 

NVDA is expected to report earnings of $0.68 per share, up from $0.46 compared to the same quarter last year, on revenue of $1.9 billion, according to consensus third-party analyst estimates. Its stock recently hit an all-time high of $120.92 in early February, but dropped to $95.17 in the weeks following its last earnings release. Since then it’s recovered to just below $104 and is up 1.8% year to date. Its performance has been significantly lagging the NASDAQ’s (COMP) 12.3% return so far this year, but it was the best-performing stock in the S&P 500 (SPX) in 2016.

Looking at options activity around NVDA’s earnings release, the market has priced in just over a 8% potential stock move in either direction for the stock, according to the Market Maker Move indicator on the thinkorswim® platform. In short-term options trading leading up to earnings at the May 12 weekly expiration, calls were active at the 105 and 110 strike prices while puts saw heavy activity at the 98 strike. As of Monday morning, the implied volatility is on the higher side at the 70th percentile.   

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation, to sell the underlying security at a predetermined price over a set period of time. 

Nvidia Stock YTD Performance Compared to AMD, INTC, and NASDAQ

FIGURE 1: NVDA YTD PERFORMANCE

Nvidia stock has been choppy after hitting an all-time high of $120.92 in February. Its stock chart is shown above compared to Advanced Micro Devices (teal line), Intel (INTC) and the Nasdaq (purple line). YTD performance as a percentage is shown on the right side of the chart. Chart source: thinkorswim® by TD Ameritrade.  Data source: Standard & Poor’s. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Declining PC Business

Many chip makers, including Advanced Micro Devices (AMD), Intel (INTC), and NVDA have had to adapt their businesses as PC sales decline. PC shipments were down 2.4% year over year to 62.2 million units, according to preliminary data released by Gartner Research. That decline is following a multi-quarter trend of declining PC shipments as more consumers turn to other devices like mobile phones and less consumers purchase traditional computers.

Looking to the Future

For most tech companies to try to stay viable over the long-run, they need to continually invest in R&D and create new products based on future technological shifts as demand wanes for older ones—like the declining PC business mentioned above. Some of the areas chip makers have been focused on are in artificial intelligence, autonomous driving, and virtual reality—all of which require a substantial amount of computing power.

Investors will find out more when the company reports and, if you haven’t had a chance, make sure to check out what might be expected when The Walt Disney Co. (DIS) and Priceline Group (PCLN) report earnings this week.

Good Trading,
JJ
@TDAJJKinahan

NC
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