As expected of the "most important stock on Earth"! NVIDIA's earnings day may trigger a massive $260 billion market value shock

According to Zhitong Finance APP, statistics from the options market show that global traders are pricing in potential volatility for "the most important stock on Earth"—NVIDIA (NVDA.US), the "AI chip leader," following its second-quarter earnings announcement on Wednesday Eastern Time. The pre-earnings options data suggests that NVIDIA, with a market capitalization of up to $4.4 trillion, could experience a market value change of about $260 billion after its earnings report, which would subsequently impact the scale of global stock market movements.

Based on options market data, the pricing of NVIDIA stock options implies that the chip giant's stock price is expected to fluctuate approximately 6% up or down after the actual earnings announcement (which will be released after the U.S. market closes on Wednesday Eastern Time, or Thursday morning Beijing Time). The performance of this chip giant is crucial for determining whether the global AI investment boom can continue, and traders are closely monitoring NVIDIA's earnings to assess the reasonableness of its market capitalization exceeding $4 trillion, as well as Wall Street analysts' expectations for the company's market value to challenge the $5 trillion mark.

Although a 6% fluctuation range and a $260 billion market value change may seem drastic, this range is below the long-term average fluctuation of 7%, indicating that as the fundamentals of this chip giant, which holds the highest weight in the S&P 500 index, mature, investors may now have a better grasp of the expected performance data and guidance.

NVIDIA's Earnings Are Crucial for the Continuation of the Global Bull Market

"The ripple effect caused by NVIDIA may be more interesting than the actual movement of NVIDIA's stock price itself," said Chris Murphy, co-head of derivatives strategy at the well-known Wall Street market maker Susquehanna. "Many highly speculative AI stocks that have surged significantly have already pulled back, but NVIDIA has essentially returned to an extreme level just slightly below its all-time high."

Murphy stated that if the chip giant's actual performance and guidance exceed market expectations, it will undoubtedly elevate the "AI feast" and "support those previously hit harder and more speculative areas of AI trading."

Wall Street generally expects NVIDIA's second-quarter earnings per share to reach $1.01, with revenue around $46.1 billion. Morgan Stanley, a major Wall Street firm, predicts NVIDIA's Q3 revenue to be $52.5 billion, but the firm admits that there are more optimistic voices in the market based on investor feedback, with some sell-side institutions predicting figures as high as $55 billion.

NVIDIA's earnings report is crucial for determining whether the U.S. stock market, and even the global stock market, can continue the "super bull market" that has been ongoing since April. It is the market's expectations for the sustained explosive growth in global AI computing infrastructure demand that have driven NVIDIA's market value to surpass $4 trillion, and this strong expectation is now pushing NVIDIA to challenge the $5 trillion market value.

At the same time, under the epic price surge of leaders in the AI computing industry chain such as NVIDIA, Google, TSMC, and Broadcom, along with their consistently strong performance this year, an unprecedented AI investment boom has swept through the U.S. stock market and global stock markets, driving the global benchmark index—MSCI World Index—up significantly since April, recently setting new historical highsAccording to ORATS data, in the past 12 fiscal quarters, NVIDIA's implied earnings report volatility averaged 7.7%, while the actual average volatility was closer to 7.6%.

Since April, the strong rally that has significantly boosted the U.S. stock market—particularly the S&P 500 index and the Nasdaq 100 index, which includes popular tech stocks—has seen a slight pullback this month in the tech sector. This is due to investors' waning enthusiasm for tech stocks that have reached historically high valuations, as well as a cautious sentiment leaning towards profit-taking ahead of NVIDIA's earnings report.

Undoubtedly, traders are now focused on NVIDIA's performance to assess whether its $4 trillion market valuation is justified. Additionally, the recent revenue-sharing agreement with the U.S. government and the potential impact of H20 sales in the Chinese market on its earnings forecast will also be closely monitored.

As a core player in the AI boom, chip giant NVIDIA has seen its stock price rise about 34% this year, closing up 1.02% on Monday at $179.81. The S&P 500 index fell 0.43% to 6,439.32 points that day, up 9.5% year-to-date.

Before NVIDIA's earnings report, Wall Street is optimistic about its potential to hit $5 trillion

"NVIDIA's performance this year has been remarkable," said Matt Amberson, founder of ORATS. "For NVIDIA, this is a perfectly timed 'Goldilocks moment.'"

Before NVIDIA officially announces its quarterly results, a large number of well-known Wall Street analysts covering semiconductor stocks have recently raised their earnings growth expectations and target prices for the company, which has a market capitalization exceeding $4 trillion and is a core beneficiary of the global AI infrastructure wave. Recently, the vast majority of top analysts are optimistic that NVIDIA's market value, against the backdrop of booming AI infrastructure, is likely to surpass the historically significant milestone of $5 trillion.

Although the company's stock price is experiencing selling pressure and profit-taking after a more than 70% surge since the April low, Wall Street remains very optimistic about NVIDIA's earnings growth prospects and stock price expectations. Just last week, at least nine Wall Street analysts raised their target prices for NVIDIA over the next 12 months, with many analysts shifting from a cautious to a bullish stance, raising the average target price for the chip giant to nearly $194, setting a historical high expectation for NVIDIA's target price on Wall Street.

Notably, most Wall Street analysts have recently set their revised target prices for NVIDIA above $210, indicating their bets that NVIDIA's market value will surpass the $5 trillion mark. Mizuho and KeyBanc both raised their target prices for NVIDIA to $215, while TD Cowen and Cantor Fitzgerald set their target prices at $235 and $240, respectively. Additionally, Wall Street investment giant Loop Capital believes NVIDIA's market value could exceed $6 trillion, assigning a target price of $250, the highest on Wall StreetGiven the high weight of the stock in the S&P 500 index—alongside Apple and Microsoft, it is currently one of the largest components—and its core importance in the global AI computing power supply chain, NVIDIA has long faced exceptionally high expectations from Wall Street analysts and investors. Since 2023, NVIDIA has consistently maintained a trajectory of explosive performance growth, rarely disappointing analysts and investors in terms of quarterly financial data and performance outlook. This has been a core supporting logic for the ongoing AI investment boom that began in early 2023.

So far, this earnings season has shown that the spillover effect of this chip giant's quarterly performance is positive, as global tech giants including Facebook's parent company Meta Platforms, as well as American tech giants Microsoft, Google, and Amazon.com Inc., have all increased their capital expenditure commitments by tens of billions of dollars. NVIDIA derives about 40% of its revenue from these four tech giants, which is a significant driver of NVIDIA's continued performance growth.

Analyst expectations compiled by Bloomberg Intelligence indicate that Wall Street analysts generally expect the four tech giants—Google, Microsoft, Facebook's parent company Meta, and Amazon—to collectively spend over $350 billion this year on the expansion or construction of data centers centered around AI computing power infrastructure. This suggests a nearly 50% year-over-year growth based on strong growth expected in 2024, with projections exceeding $450 billion by 2026.

Loop Capital, which is bullish on NVIDIA's stock price reaching $250, stated in its research report: "Our research indicates that we are entering the next wave of 'golden tide' for AI applications, and NVIDIA remains at the forefront of a significant phase where demand is far exceeding expectations." The firm predicts that by 2028, global cloud computing giants, tech companies, and sovereign AI will cumulatively spend around $2 trillion on computing power infrastructure centered around NVIDIA's AI GPUs