Nvidia Trades 10% Lower From Record-High: Should You Buy, Sell, Or Hold Ahead Of Q3 Results?

Artificial intelligence bellwether Nvidia is all set to announce its third-quarter results on Nov. 19 after US market hours, in what is seen as a 'litmus test' for Wall Street's AI bubble. The earnings results of the world's most valuable company by market cap will drive much of the Street's staggering AI bets.

The chip giant commands a market cap of $4.5 trillion after having hit the coveted $5-trillion mark earlier this year. Nvidia shares, up 38% year-to-date, have retreated 10% since hitting a record high in late October. The stock currently trades over 3% higher at $187.45 on the NYSE. Analysts say the chip titan's results could set the tone for the risk sentiment in the near term.

Nvidia's approximately 8% weighting in the S&P 500 Index and its market leadership in AI give the results added significance. The stock influences the semiconductor, AI, and other tech stocks on the Nasdaq, including the Magnificent Seven stars such as Meta, Alphabet, Apple, and others.

Nvidia which sells the graphics processing units underpinning AI, has been at the heart of a rally that has carried stock markets around the world to all-time highs and lifted any stock with even tangential links to AI. The stock is down nearly 10% this month after the recent selloff over concerns of AI bubble.

A few large investors dumped some of their AI holdings, raising fears that a market selloff is imminent. Tech billionaire Peter Thiel's hedge fund sold its entire stake in Nvidia. The stock has surged 1,200% in the past three years.

"At a time when the stock market's focus is on AI and a potential bubble, investors will be keeping a close eye on Nvidia’s earnings release. Estimates believe that revenue and EPS will remain strong; many believe the easy growth phase may be behind them," said Ross Maxwell, Global Strategy Lead at VT Markets.

According to Ross Maxwell, investors should be looking to see whether Nvidia can sustain high margins, maintain strong AI-capex demand, and avoid any export or China-related headwinds. Much of the good news may be priced in as although growth is still strong, it will be relatively modest compared to recent earnings. "Whilst a beat could trigger some upside, the market will be much more sensitive to a miss, or even softer guidance, which presents more downside risk for a potential pullback," he said.

Nvidia options implied about a 7% move for the stock in either direction after it announces its quarterly results, news agency Reuters said citing data from analytics firm Option Research & Technology Services (ORATS). Investors are seeking signs whether the AI bubble worries are overblown.

"Investors could consider reducing large directional exposure or hedging ahead of the print and then reassessing once the numbers and commentary are out. If the long-term view is still bullish, use any post-earnings dip as a potential entry rather than buying just ahead of the earnings event," said Maxwell of VT Markets.