Nvidia’s Wednesday Earnings Night: The Battle That Decides the Fate of the AI Bull Market Has Arrived

Original Author: Zhang Yaqi

Original Source: Wall Street Sights

NVIDIA will report its quarterly earnings after the market close on Wednesday, May 20th (Eastern Time), marking a critical stress test in the current AI bull cycle. The semiconductor sector is technically severely overbought, options positioning is heavily skewed towards calls, coupled with a rare signal of "stock price and implied volatility rising simultaneously," amplifying the two-way risk around this earnings report significantly compared to the past.

Goldman Sachs' TMT lead expert Peter Callahan released a briefing titled "Yellow Light" on Monday, noting that the NASDAQ 100 (NDX) and the Philadelphia Semiconductor Index (SOX) recorded their first down week of the quarter last week; the 10-year US Treasury yield rose to approximately 4.60%, its largest single-week increase in over a year; oil prices rebounded to around $109 per barrel; and the VIX also moved higher. He pointed out that the core contradiction currently facing AI and semiconductor themes is: fundamentals remain strong, while technical pressures continue to mount.

Options analytics firm SpotGamma noted in a recent report that the market is witnessing a rare pattern of "rising stock prices coupled with rising volatility" — typically, these two should have an inverse relationship. This signal indicates that traders are buying the rally while simultaneously paying a premium for protection against large swings. The implied move for NVIDIA's earnings has now reached 6%, with market attention highly focused on this juncture.

The earnings results and forward guidance will directly test the validity of the market's assessment of the AI computing supercycle. Given NVIDIA's high correlation with the semiconductor and broader tech sectors, its earnings performance, whether positive or negative, will likely trigger widespread ripple effects across the market.

Technical Signals Flash Most Extreme Warning Since 1999/2000

The magnitude and speed of this semiconductor rally have pushed technical indicators to historically overbought levels.

Goldman Sachs data shows the SOX index has rallied approximately 70% from its late March low, adding over $5 trillion in market capitalization along the way. Drivers include a phase of easing geopolitical tensions, better-than-expected corporate earnings—such as AMAT raising its full-year guidance more than anticipated and CSCO reporting 35% year-over-year product order growth—and increased investor confidence in AI computing demand; semiconductor industry earnings estimates have been revised up over 25% year-to-date.

However, Peter Callahan specifically highlighted that the SOX index is currently trading about 60% above its 200-day moving average, a deviation not seen since the peak of the 1999/2000 internet bubble. He also noted that Goldman Sachs' High Momentum factor portfolio has seen 12 trading days with daily moves of ±5% or more this year, representing nearly 15% of total trading days. The rapid expansion of leveraged ETFs and options products has further amplified this two-way elasticity.

"It's worth keeping these tactical dynamics in mind before this week's earnings season (NVIDIA on May 20th) concludes and we enter summer trading," Callahan wrote. Goldman Sachs' trading desk maintains a constructive medium-term stance on AI and semiconductor themes overall, but advises investors at the tactical level to remain cautious about technical challenges.

NVIDIA Earnings: Forward Guidance May Be More Critical Than Current Quarter Results

Market optimism regarding NVIDIA's fundamental outlook remains, but recent price action has, to some extent, priced in certain expectations.

According to Goldman Sachs' NVIDIA earnings preview report, analysts generally expect NVIDIA's current quarter revenue to exceed market consensus by approximately $20 billion—the company's historical beats typically range between 2% and 3%. Greater market focus is on the forward guidance for the next quarter, where current analyst consensus stands around $86 billion, implying a sequential increase of about 9%. Other key areas of focus include: whether there is further upside to NVIDIA's cumulative ~$1 trillion data center revenue guidance, and the narrative around accelerating Agentic AI inference demand—especially its pure CPU rack product expected to begin shipping in the second half of 2026.

In terms of recent price action, NVIDIA has risen for seven consecutive trading days, gaining 20% over that period—its longest winning streak in nearly two years—and adding approximately $1.7 trillion in market cap since its late March low. However, Goldman Sachs data also shows that in 4 out of the last 5 instances following NVIDIA's earnings reports, the stock declined the next trading day (T+1). Since May 2022, significant single-day rallies triggered by earnings have actually never occurred.

Options Market: Extreme Bullish Bets and Tail Hedging Coexist

Options positioning reveals a set of inherently contradictory signals.

According to SpotGamma data, overall positioning remains heavily skewed towards calls. Traders continue to roll NVIDIA call options to higher strike prices, with call skew holding near the top of its 90-day historical range, while downside protection demand is very limited. Citing data from 22V Research, notional volume traded in S&P 500 call options hit a record $2.6 trillion last Friday, with call options accounting for 60% of total options volume. The Relative Strength Index (RSI) for the Philadelphia Semiconductor index also rose to levels not seen since March 2000.

Simultaneously, hedging against downside risk is quietly being deployed. SpotGamma notes a significant increase in large put option structures and buying activity around the S&P 500 (SPY), the Semiconductor ETF (SMH), and DRAM-related assets, concentrated in deep out-of-the-money strike prices. This suggests their function is more akin to tail risk hedging rather than purely directional bets. "Market participants are not bearish on NVIDIA, but preparations for a downside scenario are non-trivial," SpotGamma wrote in its report. "Any directional shift will almost certainly reverberate quickly across the broader market."

SpotGamma added that NVIDIA has rallied over 35% from its March low, and the sheer size of current call option positions means that if the earnings report disappoints or triggers major profit-taking, it could potentially lead to a significant directional reversal.

Breadth Concerns: Rally Supported by a Shrinking Number of Stocks

Beneath the strong performance of semiconductors and mega-cap tech stocks, the lack of broad market participation is forming a structural concern.

In his report, Peter Callahan pointed out that while the S&P 500 is up about 8% year-to-date, only approximately 52% of its constituent stocks have posted positive returns. Areas that have notably lagged this year include residential real estate, medical devices, engineering & construction without government exposure, federal IT services, software & services, independent power producers, restaurant chains, commercial real estate brokerage, and insurance brokerage.

Callahan admits that examining the charts of these sectors makes him question whether the current market performance reflects overall "health" or is merely a "funding source" effect where investors are forced to concentrate capital into a few large-cap AI stocks. The Oppenheimer equity derivatives team also notes that over the past month, only about one-fifth of S&P 500 components have outperformed the index. The dispersion index has risen to its highest level in over a year, while implied correlation is near its year-to-date low. Recent data from Goldman Sachs' Prime Brokerage (PB) unit also indicates a noticeable "risk reduction" move in the tech sector recently.