Nvidia shares fell on Tuesday, erasing an initial gain that took the chipmaker to an intraday record a day before its highly anticipated earnings report.
Shares opened higher and climbed as much as 2.6% to hit an all-time intraday high of $481.87, the latest sign of investor optimism ahead of the results. However, they turned lower and ended the session down 2.8%. The Nasdaq 100 Index fell 0.2%.
Still, the stock remains 12% higher from a low hit earlier this month, and has surged 212% this year, making it by far the biggest gainer among constituents of the S&P 500 Index. The Philadelphia Stock Exchange Semiconductor Index is up 39% in 2023.
In a sign of how significant Wednesday’s report will be, the options market is bracing for a move of 9.8% following the results. With Nvidia accounting for nearly 3.1% of the S&P 500, the stock’s move will have broader implications.
Of the ten largest companies in the S&P 500, Nvidia is the only stock for which the price of call options — which are desirable if the stock goes up — is higher than put options, according to data from Nations Indexes.
“It tells me that people are still scrambling to buy calls in Nvidia,” said Scott Nations, president of Nations Indexes. “They still want upside much more than they’re worried about downside protection. That is an outlier in the biggest names in the S&P.”
The stock’s 2023 rally reflects optimism over artificial intelligence, which Nvidia is a key player in, and the Tuesday record is the latest example of how investors have been piling into the stock ahead of second-quarter results due after the market closes on Wednesday.
Nvidia gained 8.5% on Monday as analysts raised their price targets and expressed optimism that the report will show massive demand for the chips used to process AI services. Generative AI services like ChatGPT were thrust into the spotlight earlier this year and the excitement surrounding artificial intelligence applications lifted a number of megacap technology and internet stocks.
Last quarter, Nvidia gave a forecast that was far stronger than expected, cementing its status as a primary beneficiary of AI spending. The upcoming report will provide new details on whether demand is holding up enough to justify the stock’s surge. Revenue is seen rising 65% from the year-ago period, according to data compiled by Bloomberg.
Investors are “looking for continued outsized growth despite supply constraints” for graphics processing units and will want to see “a timeline for supply-demand balance regarding GPUs and AI demand,” according to WestPark Capital.
Nvidia’s year-to-date rally has resulted in a lofty valuation. The stock trades at 44 times estimated earnings, above its 10-year average of 32, as well as at 21 times estimated sales. The Nasdaq 100 Index trades under four times estimated sales.
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