How to anticipate Nvidia's earnings report from an FICC trading perspective? [Fu Peng on Charts]

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How to preview Nvidia's earnings from an FICC trading perspective?

Investors’ concerns about tech stock valuation bubbles and uncertainty in Fed policy paths are intensifying, risk aversion is rising in markets, resulting in broad pressure on global equities.

At Beijing time early tomorrow morning, Nvidia’s earnings report will be a key focus for the market. If the market refuses to give Nvidia a higher valuation level, what will be the outcome for its performance, i.e. the “numerator” logic?

1) If there is still room for higher valuation

If there is still room for higher valuation and earnings exceed expectations, market capitalization can rise sharply; not only can valuation be absorbed, but multiples can further expand on a strong numerator—this is the best scenario.

If there is still room for higher valuation and earnings meet expectations, further market cap growth can be supported by the valuation room.

If there is still room for higher valuation and earnings significantly miss expectations, valuation room can hedge against part of the poor numerator, supporting market cap and controlling declines.

2) If there’s no room for further higher valuation

If there’s no room for higher valuation but earnings beat expectations, market cap can climb steadily and valuation will be absorbed, gaining space—this is the best case.

If there's no higher valuation room and earnings merely meet expectations, since market cap and valuation are already priced in, there’s no further imagination for digesting valuation; likely valuation will decline.

If there's no higher valuation room and earnings miss expectations, that’s the worst scenario—both numerator and denominator (valuation) drop, causing maximum volatility.

What scenario will Nvidia’s upcoming earnings fall into? At least from the BTC perspective, I think it falls within the range of the three scenarios in case 2).

Bitcoin vs Nvidia price ratio

Here’s an updated BTC-Nvidia comparison chart. Of course, it'd be better to compare total market cap of Bitcoin and Nvidia.

Since the end of 2022, when Nvidia formally transformed and contributed mainly value toward market cap, the BTC-Nvidia price ratio chart has steadily stabilized within a certain range, between 0.9–0.4 (divided by 1,000). If our previous observation and reasoning are correct, from the BTC perspective, there’s no further room for a higher SPX valuation.

So now, with SPX’s CAPE Ratio at 40x, the BTC/Nvidia ratio means only a stronger numerator can drive NVDA‘s stock price higher.

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Risk Warning & DisclaimerThe market has risks; investment should be prudent. This article does not constitute personal investment advice and has not considered any user's unique investment goals, financial status, or needs. Users should consider whether any opinions, views, or conclusions herein fit their particular circumstances. Investment made accordingly is at your own risk.