TLDR
- Nvidia’s forward P/E ratio has dropped to 24x, close to the S&P 500’s 21x multiple, raising questions about valuation ahead of Wednesday’s earnings.
- Options markets are pricing in a 5.4% move in either direction, implying a $280 billion swing in market cap.
- JPMorgan analyst Harlan Sur says upside to near-term numbers is unlikely to act as a positive catalyst, with the stock averaging a 3-5% decline in the 7-30 days after recent earnings beats.
- Nvidia has declined for seven straight trading days but is still up 11.7% year-to-date.
- Rising Treasury yields and broader market pressure are adding headwinds going into the report.
Nvidia (NVDA) reports second-quarter earnings on Wednesday, and Wall Street is watching closely. The stock has fallen for seven consecutive trading days ahead of the print, though it remains up 11.7% for the year. As of Monday, NVDA was trading down 2.91%.
The forward price-to-earnings ratio for Nvidia currently sits at 24 times. That’s not far from the S&P 500’s 21x multiple, which is a striking comparison for one of the fastest-growing companies in the market.
That multiple has been compressing steadily since August 2024, when AI-driven demand began fueling rapid earnings growth. The more Nvidia earns in real dollars, the less room there is for speculative pricing.
JPMorgan analyst Harlan Sur noted in a Monday note that beating estimates may not be enough. Over the past four quarters, Nvidia’s revenue guidance has beaten Street consensus by an average of 4%, yet the stock has fallen 3% to 5% on average in the 7 to 30 days following results.
In short, the market has gotten used to Nvidia delivering. Surprise has become harder to pull off.
Options traders are pricing in a 5.4% move in either direction on Thursday, the day after earnings. That implies a $280 billion swing in market cap, which is larger than the individual market value of roughly 90% of S&P 500 companies.
Still, the 5.4% implied move is below the 6.5% priced in ahead of May’s report, and well under Nvidia’s historical average swing of 7.4% over the last 12 quarters.
What Could Rerate the Stock
JPMorgan’s Sur laid out three potential catalysts that could push Nvidia’s valuation higher.
First, if management can reassure investors that it’s holding off competition in AI compute. Second, if it can show long-term benefits from recently announced infrastructure funding deals, including a partnership with six major financial institutions targeting over $500 billion in AI infrastructure. Third, any improvement in its stalled China business could add meaningful upside, with Sur estimating that H200 GPU shipments could add roughly $3 billion in revenue per 100,000 units shipped.
The Macro Backdrop
Nvidia is also dealing with a tough macro environment. Rising Treasury yields have pressured growth and tech stocks broadly, with 30-year yields recently hitting a 19-year high. Federal Reserve Chair Kevin Warsh is set to speak in Jackson Hole later this week, adding another layer of uncertainty.
Investors will be focused on Nvidia’s revenue guidance, chip demand, and whether hyperscalers are still increasing AI-related capital spending.
“Nvidia probably has a pretty good pulse on the hyperscaler capex trajectory,” said Will Sterling, CIO at TritonPoint Wealth. “Return on investment from the hyperscalers is really important.”
As of Monday, Nvidia’s 30-year Treasury yields remained above 5%, with the S&P 500 down 0.28% and the Philadelphia Semiconductor Index down 2.70% on the day.
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