Nvidia Earnings Preview: Market No Longer Expects a Beat

The options market is telling a different story

After Wednesday's U.S. market close, Jensen Huang will pick up the microphone.

Analysts' average estimate: second-quarter revenue of $92.18 billion, nearly doubling year over year, the fastest growth in seven quarters, driven by more than twofold growth in the data center business. This $5 trillion company has beaten analyst expectations for 14 consecutive quarters—last quarter net profit grew 210% year over year, while Wall Street forecast 126%, nearly twice the forecast.

By all accounts, this should be a tense night.

But options market pricing tells a different story.

What are options saying?

Traders are pricing in a 5.4% move for the day after earnings, corresponding to roughly $280 billion in market value change—larger than the total market cap of 90% of S&P 500 constituents.

Sounds scary, but context matters: before May earnings, the market priced a 6.5% move; over the past 12 quarters, the actual average post-earnings move was 7.4%. In other words, this is the calmest expected move in two years.

Matt Amberson, founder of options analytics firm ORATS, put it bluntly: "This shows a certain complacency about NVIDIA, and also means it has become more predictable."

Chris Murphy, co-head of derivatives strategy at Susquehanna, went further: "In the early days of the AI era, NVIDIA always surprised everyone, with moves of 10%, 15%, 20%—that phase is basically over. Few in the market really think they will blow everyone away with a huge beat and then the stock will surge."

One piece of evidence is its stock price this year.

Year to date, NVIDIA is up 11.7%, while the S&P 500 is up 11.8%—it has slightly underperformed the broader market. Meanwhile, the Philadelphia Semiconductor Index is up 61%. The biggest picks-and-shovels play in the AI buildout has underperformed the entire shovel industry this year. On Monday, it closed lower for the seventh consecutive session, the longest streak since 2022.

Last month, it briefly ceded the title of "world's most valuable company" to Apple.

On Tuesday, it rebounded about 1% in premarket trading, potentially ending the losing streak. But the rebound was driven less by NVIDIA itself than by Brent crude falling to around $89. Kathleen Brooks, research director at XTB, said: "The shift in sentiment is thanks to the drop in oil prices."

So what is the market waiting for?

Sara Araghi, portfolio manager at Franklin Equity, part of Franklin Templeton, spelled out the requirement on Bloomberg TV on Tuesday: NVIDIA needs more than just a pretty earnings report—it needs to specifically explain how it plans to deploy capital and maintain its spending plans.

"More details on these investments, the value of these investments—I think the market needs to see that."

She pointed out a disconnect: NVIDIA's forward price-to-earnings ratio for the next 12 months is now about 21 times, completely mismatched with its expected revenue and earnings growth. That multiple suggests the market is already pricing in a slowdown.

"This (growth) is extraordinary," she said, "but the slowdown is coming, and unfortunately, the market is looking at next year."

She also gave two specific checkpoints.

First, gross margin. NVIDIA's roughly 75% gross margin is unusual for a hardware company and will be closely scrutinized against a backdrop of rising raw material costs. To hedge higher memory costs, NVIDIA is already raising prices: for early 2027 servers based on Vera Rubin and Grace Blackwell architectures, quotes to major customers will rise by more than 15%.

Second, the use of that money. Earnings growth matters because it lets Wall Street be confident that "the free cash flow they generate is enough to support the investments they need to make." She added: "And they have to use that money to buy back stock."

Analysts at Bloomberg Intelligence issued a similar warning: a routine "beat and raise" may no longer be enough to boost sentiment.

Where is the money actually flowing?

That is the real subject of this earnings report. Over the past month, NVIDIA has done things beyond the scope of a chip company:

It teamed up with six of Wall Street's largest financial institutions to arrange a $500 billion AI financing program, pledging to backstop loans for customers who can't afford its chips.

Last week, it agreed to provide up to $105 billion in guarantees for OpenAI to lease a large data center in Ohio for 20 years—one of its largest AI financing commitments.

Also last week, it took a stake in Cloverleaf Infrastructure, a company that specializes in arranging power for data centers.

It also reached a $6 billion deal with startup Poolside to develop a powerful open-weight AI model.

Brian Mulberry, chief market strategist at Zacks Investment Management, gave this set of moves a name: "This makes them a kind of central bank role in the AI space." He owns NVIDIA stock, but also noted the risk: "The real risk is full exposure to AI without any diversification. For this to work, the adoption rate of AI tools must continue to grow."

"Circular financing" is the core question here: if I lend you money to buy my chips, is my revenue real demand, or is it something I manufactured myself?

Jensen Huang's defense is straightforward: the logic is simple—the company is cash-rich and can use that money to support fast-growing but still loss-making customers in their buildouts. He said the Ohio backstop does not constitute circular financing.

For that argument to hold, those customers must eventually make money. And recent signals are not good: OpenAI recently told investors that its second-quarter revenue grew only 18%, while losses are widening.

Jensen Huang faces more than just his own challenges tonight

NVIDIA's earnings land against a very unfriendly backdrop.

The political backlash against AI is growing. More than 500 towns across the U.S. have restricted data center construction. A bond sell-off has pushed borrowing costs to multi-year highs, with 30-year Treasury yields hitting a 19-year high last week. The former money printers—hyperscale cloud providers—are increasingly relying on debt to fund buildouts, and big tech's data center spending is expected to exceed $730 billion this year.

Zacks' Mulberry used a metaphor to describe the weight of this earnings report: "It's becoming more like a World Cup final than a Super Bowl. It's just gotten that big."

Investors are really looking for one answer: how fast the transition from Blackwell to Vera Rubin can happen, with shipments expected to begin this fall.

Russ Mould, investment director at AJ Bell, put it bluntly: "NVIDIA's upcoming results have the ability to move the entire market up or down. Investors are looking for clues—is AI demand losing momentum?"