Nvidia Stock, After Big Meta Chip News, Sets Up Ahead Of Quarterly Earnings Report

Leaderboard stocks Nvidia (NVDA) and Amer Sports (AS) headline another busy week of earnings reports as the Nasdaq composite and S&P 500 struggle to overcome elevated distribution day counts. Nvidia stock outperformed Wednesday on news of a multiyear, expanded artificial intelligence chip partnership with Meta Platforms (META).

In the oil-and-gas sector, Diamondback Energy (FANG) starts things off early in the week with results due Monday after the close. The petroleum producer has rallied sharply ahead of earnings as oil prices surge amid heightened tension between the U.S. and Iran. Diamondback specializes in horizontal drilling and operates in the Permian Basin of West Texas. Revenue jumped 48% in the third quarter to $3.68 billion, and it’s expected to leap another 48% in the fourth quarter to $3.9 billion.

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Group peer and new issue BKV (BKV), a natural gas producer that operates in the Barnett Shale in Texas, reports early Wednesday. Revenue is expected to more than double to $260.2 million.

Nvidia Stock Goes Sideways

Nvidia joined the Leaderboard model portfolio on Feb. 9 when it looked poised to break out of a downtrend. Nvidia stock closed off highs Wednesday and could only muster a gain of 1.6% despite news that Meta Platforms will be the first company to deploy Nvidia’s Grace central processing units as stand-alone chips in its data centers. Meta will also use Nvidia’s Spectrum-X Ethernet switches, which link graphics processing units together in data centers.

All eyes will be on Nvidia stock when it reports earnings late Wednesday. Nvidia had a volatile reaction to earnings when it last reported results on Nov. 19. Shares initially soared 5%, but the stock reversed lower for a loss of 3% in heavy volume. The results and company outlook were strong again, with profit up 60% and revenue up 62% to $57 billion. Revenue was about $2 billion ahead of expectations. Revenue in the data center segment totaled $51.2 billion, up 66%.

Earnings for the January-ended quarter are forecast to rise 71% to $1.52 a share, with revenue up 62% to $65.7 billion.

Meanwhile, Amer Sports joined the Leaderboard portfolio on Dec. 9, but a breakout has been slow to take shape. The parent company of Wilson Sporting Goods as well as outdoor equipment brand Arc’teryx has outstanding fundamentals. Fund sponsorship is strong, too, with Fidelity Contrafund (FCNTX) a top holder.

Amer Sports reports early Tuesday. Adjusted profit is expected to jump 66% to 28 cents a share. Revenue is seen rising 30% to $1.99 billion.

Watching These Solar Stocks

Two top-rated stocks in the solar group — priced at just above 10 — are also on the earnings docket. Shoals Technologies (SHLS) is setting up in a cup base with its fourth-quarter report due Tuesday before the open. The company is a provider of electrical balance system solutions for solar and energy storage projects. In other words, Shoals provides various components and systems that help reduce installation labor, lower costs and improve system reliability.

The other company, group peer Array Technologies (ARRY), is a provider of utility-scale solar tracker technology that helps maximize energy production for solar projects. It competes with Nextpower (NXT), formerly known as Nextracker.

Array owns a Composite Rating of 97 out of a best-possible 99, helped by three straight quarters of strong earnings and revenue growth. For its fourth quarter, the company is expected to lose a penny a share, but revenue is expected to jump 70% to $211.5 million. Array reports late Wednesday, along with FTAI Aviation (FTAI), tracked in the Aerospace/Defense group.

Separately, three firms in the building sector are set to report earnings Thursday before the open. Emcor Group (EME), Installed Building Products (IBP) and TopBuild (BLD). All three firms have varying degrees of exposure to the rapidly expanding data center market.

In the red-hot fiber optic group, Applied Optoelectronics (AAOI) reports Thursday after the bell. As a provider of high-speed optical transceivers for data centers, revenue growth has exploded in recent quarters. Over the past three quarters, year-over-year revenue growth has ranged from 82% to 146%. For the fourth quarter, analysts are predicting revenue of $132.3 million, up 82%.

Options Trading Strategy

A basic options trading strategy around earnings — using call options — allows investors to buy a stock at a predetermined price without taking a lot of risk. Investors put this to work during stock market uptrends. Traders should generally avoid this during stock market corrections.

Here’s how the option trading strategy works:

See Which Stocks Are In The Leaderboard Model Portfolio

First, investors should identify top-rated stocks with a bullish chart. Some might be setting up in sound early-stage bases. Others might have broken out already and are getting support at their 10-week moving average for the first time. A few also might be trading tightly near highs and are refusing to give up much ground. Avoid extended stocks that are too far past proper entry points.

A call option equates to a bullish bet on a stock. Put options are bearish bets. One call option contract gives the holder the right to buy 100 shares of a stock at a specified level, known as the strike price.

The Next Step

Once you’ve identified a bullish setup in the earnings calendar, check strike prices with your online trading platform or at Cboe.com. Also, make sure the option remains liquid with a relatively tight spread between the bid and ask.

Investors should look for a strike price just above the underlying stock price — that’s out of the money — and check the premium. Ideally, the premium should not exceed 4% of the underlying stock price at the time. In some cases, an in-the-money strike price is OK as long as the premium isn’t too expensive.

It’s best to choose an expiration date that fits a risk objective. But investors should be mindful that time is money in the options market. Near-term expiration dates will have cheaper premiums than those further out.

Buying time in the options market comes at a higher cost. Also, keep in mind that implied volatility tends to rise before an earnings report. That can push up the cost of options.

Nvidia Stock Option Trade

When Nvidia stock traded around 186, a slightly out-of-the-money weekly call option with a 187.50 strike price and a Feb. 27 expiration came with a premium of around $6.05 a share. That was 3.2% of the underlying stock price at the time and below the 4% risk threshold.

One contract gave the holder the right to buy 100 shares of Nvidia stock at 187.50. The maximum loss on a 100-share contract comes in at $605. Remember that Nvidia would need to rise to 193.55 for the trade to break even, factoring in the premium paid.

The expected earnings-related move in the options market for Nvidia stock is about 13 points up or down. Traders can find this number by adding the call and put premiums for the in-the-money strike of 185, expiring Feb. 27.

Follow Ken Shreve on X/Twitter @IBD_KShreve for more stock market analysis and insight.

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