Nvidia Corp.

delivers quarterly earnings after the bell Wednesday and options traders are betting on one thing: the report will move the market.

Which way is anyone’s guess. But going by activity in the derivatives market, traders are preparing for a massive impact when the world’s largest chipmaker gives an update on sales and profits from its

artificial-intelligence

products.

Traders are loading up on September puts and calls tied to Nvidia’s shares by the most in three months, driving implied volatility up sharply. The world’s most valuable company, at eight per cent of the S&P 500 Index by weighting, is also set to roil the broader market. Over the next month, only the highly anticipated Sept. 17 United States

Federal Reserve

policy meeting is expected to have a bigger trading impact than Nvidia on Thursday, and only barely, going by swings implied on derivatives markets, according to Piper Sandler & Co.

The stakes are so high for the market that Nvidia’s earnings are the biggest risk factor in the coming weeks, outweighing the Sept. 5 jobs report and the next consumer price reading Sept. 11. That’s because Nvidia is ground zero for the AI trade that has powered stocks to record after record in the past three years.

“A lot is riding on this because Nvidia is the bellwether of the AI story,” said Adam Phillips, managing director of portfolio strategy at EP Wealth Advisors. His firm holds just a five per cent average weighting in Nvidia across portfolios due to the stock’s growing size.

While a strong report could boost Nvidia shares and lead the market higher, any miss — real or perceived — could stop the rally in its tracks and add significant weight to the downside. Options traders are pricing in a 5.9 per cent swing in either direction for the stock, according to data compiled by Bloomberg.

“We’re trying to get clients to focus on other names,” Phillips said. “Everyone is waiting on pins and needles fearing that this could be the release that doesn’t go the way the market wants, risking a broader selloff.”

Historically, Nvidia shares have continued to swing well after its profit updates. Over the last three years, the stock has seen an average move of 13.2 per cent in either direction over the 28 sessions after its report, not including the day-after move, according to Christopher Jacobson, co-head of derivatives strategy at Susquehanna International Group.

Going by recent history, the risks are stacked to the downside. In the past four quarters, the stock has fallen at least six per cent twice, eked out a gain once and rose 3.3 per cent.

“Owning the earnings volatility has generally been a losing proposition as of late,” Jacobson wrote in a note Tuesday.

Traders, while expecting big swings, aren’t quite as worried about massive moves as they were last quarter. Through Monday, options were pricing in about a 24 per cent chance of a move greater than 10 per cent in either direction, down from a roughly 35 per cent chance three months prior.

Nvidia’s stock has added roughly US$2 trillion in market value since early April to trade near a record on optimism around the AI boom. Its biggest customers — Microsoft Corp., Alphabet Inc., Amazon.com Inc. and Meta Platforms Inc. — all pledged to pump more into capital spending in the months ahead.

One of the biggest questions that Nvidia faces is whether it will be able to sell its products in China. The Trump administration recently gave Nvidia and Advanced Micro Devices Inc. permission to resume sales in China as long as they give 15 per cent of the revenues to the U.S. government. But Beijing has urged local companies to avoid using its H20 processors, particularly for government-related purposes, as it pressures them to purchase domestic chips instead.

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Wall Street analysts expect Nvidia to report US$1.01 in adjusted earnings per share in its fiscal second quarter, a 48 per cent jump from the previous year, on revenue of more than US$46 billion, up 54 per cent from the same quarter a year ago.

While lower interest rates should help growth stocks like Nvidia, they won’t address concerns about high market valuations. The S&P 500 trades at about 22 times forward earnings, above its 10-year average price-to-earnings ratio of 19. Nvidia is trading at roughly 34 times its blended forward P/E ratio, below its five-year average of 39.

Investors will be watching to see if this historic capex cycle pays off — or turns into a write-down.

“Nvidia is firing on all cylinders, though the company is valued at over US$4 trillion, and sometimes just a small wrinkle could knock the stock lower even if it’s a solid report, which would thereby take the broader market lower with it, given its hefty weighting,” said Eric Diton, president and managing director of Wealth Alliance, an investment advisory firm. “It’s very unpredictable.”

Bloomberg.com