The options market is currently experiencing a lull ahead of two significant events this week: Nvidia Corp.'s earnings report and the annual Jackson Hole central bankers' gathering. Nvidia's earnings typically act as a major catalyst for the broader market; however, the options market is only pricing in a modest 4.6% move for the stock after the financial results are released. This projected move is near the lowest level seen in the past decade, according to Citigroup Inc., indicating a current sense of market apathy.
Adding to the cautious sentiment, Korean investors have been net selling Nvidia shares, offloading approximately $2.63 billion worth this month, and also divesting $10.49 trillion in SOXL (a triple-leveraged semiconductor ETF), $6.66 trillion in Palantir, and $5.16 trillion in Microsoft. This trend suggests a broader retreat from leveraged products and individual AI and technology stocks. Investors are now less concerned with headline earnings figures and more focused on the sustainability of growth and whether AI investments are translating into improved profitability. For instance, Alphabet and Microsoft both beat expectations, yet their stock prices fell due to concerns over capital expenditure burdens associated with AI expansion. Nvidia faces similar scrutiny, needing to demonstrate not just earnings but continued profit growth from its AI investments.
Nvidia's earnings reports have frequently led to stock declines, with drops in six of the past eight quarters, including the last four. This pattern suggests that even strong earnings may not prevent a dip, as the market is already anticipating excellent performance and a bullish outlook from CEO Jensen Huang. Analyst Tim Arcuri from UBS believes that strong numbers confirming a path to $15+ EPS in 2027 and $20 in 2028 could drive the stock higher, despite concerns about AI infrastructure spending and credit risk. However, HSBC analyst Frank Lee suggests that a significant re-rating for Nvidia will require a new narrative beyond just earnings and product roadmaps.
Meanwhile, Nvidia has informed some of its largest customers about price increases exceeding 15% for servers containing its AI chips, effective early next year. These increases, impacting systems with Vera Rubin and Grace Blackwell chips, are primarily driven by soaring memory chip costs. This move highlights the leverage held by memory chip manufacturers like Samsung Electronics Co., SK Hynix Inc., and Micron Technology Inc., whose supply still struggles to meet the surging demand for AI infrastructure. Despite Nvidia's impressive 75% gross margin, the company is passing on these elevated costs, underscoring the intense demand for its AI accelerators and the limited alternatives available to customers like Microsoft, Google, and Oracle. The market also fears that if the 10-year US Treasury yield continues to rise, it may shift investor attention away from growth-oriented companies like Nvidia towards those with stronger shareholder returns and higher capital efficiency.
