NVDA Earnings Bombshell: Can $138.85 Spark a Massive Post-Release Rally or Crash?

As we approach $NVIDIA(NVDA)$ ’s Q1 2025 earnings release on February 26, 2025 (after market close), the market is abuzz with anticipation. For those of us deeply embedded in the US tech sector, NVIDIA remains one of our marquee positions. With Q1 ending in January 2025, this earnings report is set to reveal key insights into NVIDIA’s performance amid a rapidly evolving technology landscape. At the close on February 14, 2025, NVIDIA traded at $138.85.

Guidance Versus Analysts’ Forecasts

Preliminary whispers from management suggest that NVIDIA expects Q1 revenue to reach around $13.2 billion, slightly edging out the consensus forecast of roughly $12.9 billion. Although official numbers are yet to be released, this potential beat is underpinned by strong demand in the data centre and gaming segments, as well as ongoing AI adoption across industries. However, uncertainties remain—especially given emerging headwinds that could temper the outlook.

Key Drivers: The Upside and Downside

Positive Drivers

1. Robust Data Center & AI Demand: NVIDIA continues to benefit from sustained demand in the data centre segment. With cloud providers and enterprises accelerating investments in AI and high-performance computing, NVIDIA’s advanced GPU architectures remain the backbone of next-generation AI applications.

2. Stargate Initiative: President Trump’s recent announcement of the “Stargate” AI infrastructure initiative—a plan that envisions up to $500 billion in investment (starting with an initial $100 billion in Texas)—is a major tailwind. This initiative is expected to boost demand for NVIDIA’s GPUs as they power critical AI workloads, presenting a significant long-term growth catalyst.

3. HPE’s Revolutionary AI Solution: HPE’s launch of a breakthrough AI solution that leverages NVIDIA hardware has further reinforced NVIDIA’s entrenched role in the enterprise AI ecosystem. Such strategic partnerships continue to validate NVIDIA’s technology leadership.

Negative Drivers

1. DeepSeek’s Challenge to CUDA: The recent emergence of DeepSeek, which bypasses NVIDIA’s proprietary CUDA ecosystem, challenges NVIDIA’s historically robust competitive moat. While the immediate impact may be muted—thanks to CUDA’s deep penetration among developers—the potential for alternative ecosystems to gain traction poses a longer-term risk.

2. Tariff and Geopolitical Pressures: Ongoing tariff issues and geopolitical tensions remain a concern, potentially affecting NVIDIA’s supply chain and cost structures. These external factors could put pressure on margins if not carefully managed.

3. Intensifying Competition: The tech landscape is rapidly evolving, and increasing competition from other GPU manufacturers—particularly those targeting the AI space—could chip away at NVIDIA’s market share over time.

Current Implied Volatility Environment

NVIDIA’s options are trading in a moderately high implied volatility environment. Specifically, the current IV is around 57-58%, with a 52-week IV rank ranging between 34% and 43%, and a 52-week IV percentile between 69% and 71%. These metrics indicate that while option premiums are somewhat elevated relative to historical norms, they aren’t excessively overpriced. However, these levels do require a cautious approach, as elevated IV can lead to pronounced decay if the anticipated move doesn’t materialize post-earnings.

Three Trading Ideas for NVDA Earnings

Given the current price of $138.85 and the earnings event on February 26, here are three trading ideas tailored to different market views, taking into consideration the current IV environment:

1. Bullish Trade – Call Spread: If you’re bullish that NVIDIA will beat guidance—thanks to strong data centre performance, the positive implications of the Stargate initiative, and HPE’s AI solution—consider a call spread. Structure: Buy NVIDIA March 21, 2025 $145 calls and sell March 21, 2025 $150 calls. Rationale: This spread limits risk while offering substantial upside if the stock rallies above the $145-$150 range post-earnings. Given the IV environment (around 57-58%), the premiums are attractive, and the defined risk minimizes the impact of IV decay after the earnings event.

2. Bearish Trade – Put Spread: For those who believe that challenges like DeepSeek’s disruption and geopolitical pressures might force NVIDIA to miss expectations, a bearish put spread is an effective way to capitalize on a downside move. Structure: Buy NVIDIA March 21, 2025 $135 puts and sell March 21, 2025 $130 puts. Rationale: This strategy provides a defined risk/reward profile and stands to benefit if the stock declines below $135. The current IV levels justify the premium costs for this spread, and the trade limits exposure to potential volatility decay.

3. Neutral Trade – Long Straddle: Earnings events often lead to significant price swings regardless of direction. For a neutral approach that capitalizes on the anticipated post-earnings volatility spike, a long straddle is appealing. Structure: Buy both NVIDIA March 21, 2025 $140 calls and $140 puts. Rationale: This position is designed to profit from a substantial move in either direction. While the IV is moderately high, meaning the straddle might be a bit costly, the historical tendency for earnings to drive large moves can still provide a favourable risk/reward scenario if the move exceeds the IV-induced decay.

Conclusion

NVIDIA’s Q1 2025 earnings report is poised to be a major market mover. With the stock at $138.85 and several key drivers in play—ranging from the promising Stargate initiative and robust data centre demand to potential headwinds like DeepSeek and tariff concerns—investors must remain agile. The earnings call will test NVIDIA’s guidance against analyst forecasts and provide critical insights into the company’s ability to navigate emerging challenges.

For long-term investors, maintaining a core position in NVIDIA remains compelling. Meanwhile, the options strategies outlined above offer targeted ways to capitalize on directional moves while managing risk in a moderately volatile environment. Given the current IV of around 57-58%, with a 52-week IV rank between 34%-43% and an IV percentile of 69%-71%, these trades are priced attractively but require careful management to mitigate potential decay. As always, staying updated on market conditions and IV metrics will be key to executing these strategies successfully.

Please DYODD.