Investing Alternatives to Nvidia Stock: Options Strategies Post 427% Growth Report

Nvidia's stock surges 427%, options market anticipates $200 billion market-cap swing.

By Alex P. Chase

5/23, 12:33 EDT
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NVIDIA Corporation

Key Takeaway

  • Nvidia (NVDA) reported a 427% growth rate, surpassing expectations and highlighting its dominance in the AI sector.
  • Nvidia's stock has tripled since last year, with significant volatility; options market anticipates a $200 billion market-cap swing.
  • Investors can use strategies like upside call options or call spread risk reversals to capitalize on Nvidia's growth without directly buying the stock.

Nvidia's Exceptional Earnings

Nvidia (NVDA) has once again delivered an outstanding quarterly performance, surpassing even the high expectations set by investors. The company's growth rate accelerated from an already impressive 409% in the previous quarter to 427%. Dan Ives of Wedbush commented, "The Godfather of AI delivered another masterpiece quarter and guidance that should be hung in the Louvre." This performance underscores Nvidia's dominant position in the AI sector, which is currently the most significant theme in investing.

The company's CEO, Jensen Huang, noted that the growth rate could have been even higher if Nvidia had been able to keep up with the overwhelming demand for its products. Nvidia's current generation of AI graphics processing units (GPUs), known as Hopper, are essential for developing advanced AI applications like chatbots, translators, and image generators. The top cloud and internet companies, including Google, Microsoft, Meta, Amazon, and OpenAI, have been purchasing these GPUs in large quantities to build out their AI infrastructure.

Market Reactions and Comparisons

Nvidia's stock has more than tripled since the company reported its fiscal first-quarter earnings last year. The options market anticipated a potential market-cap swing of nearly $200 billion by the end of the week, highlighting the significant volatility surrounding Nvidia's stock. This figure is comparable to the market caps of major companies like Disney and McDonald's. The stock closed at an all-time high on Tuesday, continuing its meteoric rise. However, the stock's reaction to earnings has been unpredictable; in February, it surged 16% post-earnings, while in November, it dropped by 2.5%.

Comparing Nvidia to Intel (INTC) reveals stark differences in their market trajectories. While Nvidia's GPUs are in high demand for AI applications, Intel's products do not offer the same capabilities. This has resulted in a significant performance gap between the two companies. Intel is trading at just over 15.7 times its 2025 estimated earnings, whereas Nvidia is trading at twice that multiple.

Investment Strategies

For investors looking to capitalize on Nvidia's growth without directly purchasing the stock, options provide a viable alternative. One strategy is to purchase an upside call option, such as the September $1050 calls, which cost $104.60. This trade would require Nvidia to rally at least another 10% within the next four months to see profits.

Another strategy is a call spread risk reversal, which involves selling a September $900 put, buying a September $1100 call, and selling a September $1200 call. This approach caps the upside profit potential at the $1200 strike call but also introduces a "margin of safety" by selling a downside put. This means the investor could be compelled to purchase the shares at the $900 strike of the put that is sold, representing a more than 13% discount to the current stock price.

Street Views

  • Dan Ives, Wedbush (Bullish on Nvidia):

    "The Godfather of AI delivered another masterpiece quarter and guidance that should be hung in the Louvre."

Management Quotes

  • Jensen Huang, CEO of Nvidia:

    "The growth rate would have been even higher if we were able to keep up with demand."