The co-head of derivative strategy at Susquehanna Financial Group, Chris Murphy, claimed that "The put buying in SMH ahead of Nvidia's earnings reflects growing concern about potential volatility for the entire sector following the report."
The chip manufacturer makes up about 20% of the VanEck Semiconductor EFT, so a weak earnings report or negative outlook from Nvidia could have a big impact on the semiconductor sector overall.
Because of its leading role in the artificial intelligence market, Nvidia’s influence extends beyond its 20% share, analysts say.
While investors have taken a cautious, defensive approach with the EFT’s options, the activity on Nvidia’s own options has been more mixed.
According to Murphy, some investors are selling options to benefit from the expected high volatility around Nvidia’s earnings, betting that the market’s reaction won’t be too extreme.
However, analysts expect Nvidia’s earnings to go lower, especially if U.S. restrictions cut off access to its key Chinese market. In April, the company was hit with new report rules requiring licenses for its H20 chips, which led to a $5.5 billion reduction in the value of its inventory.
Despite strong performance this year, Nvidia was one of only two stocks with net selling among Interactive Brokers’s most traded securities, signaling caution among investors.
Many now believe the company’s growth may slow, with some even expecting an EPS miss.
The Trump administration said the export restrictions were based on concerns that the chip manufacturer’s technology could be used in Chinese supercomputers or military projects. In response, Nvidia CEO Jensen Huang criticized the policy, arguing it harms U.S companies more than it helps.
Still, Nvidia is developing a new line of chips specifically for the Chinese market. Sources say production will begin in June, with prices ranging from $6.500 to $8,000. The lower cost is due in part to simpler manufacturing requirements.
In the meantime, the chip manufacturer remains largely excluded from the Chinese market.
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