Nvidia (NVDA) gets top billing on the latest earnings calendar, but don’t overlook Modine Manufacturing (MOD), a provider of thermal management solutions in the fast-growing data center market. Nvidia soared above a buy point Wednesday, while Modine is trying to clear a cup base after several months of outperformance.
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For Nvidia to move to new highs from here, it’ll most likely need another big earnings and revenue beat, along with a significantly raised forecast from the company. Same goes for Modine.
With Nvidia, HSBC upped the artificial intelligence leader’s price target earlier in the week to 1,350, saying that the company’s earnings power hasn’t fully been valued into the stock.
Nvidia Holds Strong
It’s no secret what’s been fueling Nvidia’s price strength in recent months — torrid earnings and revenue growth for three quarters in a row.
When Nvidia reported fiscal fourth-quarter earnings Feb. 21, shares gapped up sharply the next day. Nvidia said adjusted profit soared 486% year over year to $5.16 a share. Revenue jumped 265% to $22.1 billion, with data center sales up 409% to $18.4 billion, helped by strong demand for its graphics processors used to run AI applications.
The company’s gaming business, which includes graphics cards for laptops and PCs, rose 56% to $2.87 billion.
“Accelerated computing and generative AI have hit the tipping point,” Chief Executive Jensen Huang said in the earnings release. “Demand is surging worldwide across companies, industries and nations.”
Huang also said that while demand remains strong from large cloud-service providers, the company is also seeing robust demand from enterprise software and consumer internet firms.
Nvidia raised its revenue outlook for the April-ended quarter to $24 billion. At the time, analysts had predicted $22.17 billion in sales.
Results for the quarter are due Wednesday after the close. Nvidia stock analysts polled by FactSet predict adjusted profit of $5.22 a share, up 474% year over year, with revenue up 241% to $24.5 billion.
Watching Modine
Modine has been on a tear in recent months, helped by strong earnings growth in recent quarters, although estimates are for a much slower pace. Revenue growth is expected to pick up in the second half of the year.
Artificial Intelligence News And AI Stocks To Watch
Modine stock was volatile when the company’s earnings report in late January showed adjusted profit up 54% year over year to 74 cents a share. Revenue was flat at $561.4 million. Shares fell 10% intraday, but Modine reversed higher for a gain of 3.5% in strong volume, helped by an upwardly-revised full-year earnings outlook for the third straight quarter.
Still, revenue at Modine’s climate solutions segment fell slightly to $242.5 million. The decrease came on lower sales of heat transfer products. That was partly offset by higher sales of data center cooling products, along with heating, ventilation and air conditioning systems as well as refrigeration products.
“We are experiencing rapid sales growth to the data center market, supported by robust demand from both hyperscale and colocation customers,” said Modine CEO Neil Brinker.
Modine stock tripled in price last year and was up another 83% this year through Wednesday. Modine is currently trying to clear a cup base with a 106.01 entry.
Results for the March-ended quarter will be out Tuesday after the close.
Options Trading Strategy
A basic options trading strategy around earnings — using call options — allows you to buy a stock at a predetermined price without taking a lot of risk. Here’s how the option trading strategy works, and what a call-option trade recently looked like for Nvidia stock.
First, identify top-rated stocks with a bullish chart. Some might be setting up in sound early-stage bases. Further, others already might have broken out and are getting support at their 10-week moving averages for the first time. And a few might be trading tightly near highs and refusing to give up much ground. Avoid extended stocks that are too far past proper entry points.
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A call option is a bullish bet on a stock. Put options are bearish bets. One call option contract gives the holder the right to buy 100 shares of a stock at a specified price, known as the strike price.
Once you’ve identified a bullish setup in the earnings calendar, check strike prices with your online trading platform, or at cboe.com. Also, make sure the option is liquid, with a relatively tight spread between the bid and ask.
Look for a strike price just above the underlying stock price — that’s out of the money — and check the premium. Ideally, the premium should not exceed 4% of the underlying stock price at the time. In some cases, an in-the-money strike price is OK as long as the premium isn’t too expensive.
Choose an expiration date that fits your risk objective. But keep in mind that time is money in the options market. Near-term expiration dates will have cheaper premiums than those further out. Buying time in the options market comes at a higher cost.
Nvidia Stock Option Trade
When Nvidia stock traded around 946.25, a slightly out-of-the-money weekly call option with a 950 strike price and a May 24 expiration came with a premium of around $44 per contract. That was 4.6% of the underlying stock price at the time.
One contract gave the holder the right to buy 100 shares of Nvidia at 950 per share. The most that could be lost was $4,400 — the amount paid for the 100-share contract. To break even, Nvidia would need to rise to 994, factoring in the premium paid.
Keep in mind that this is not a trade for a smaller portfolio. The reason is that taking delivery of 100 shares of Nvidia in the above scenario would cost $95,000.
The expected move in the options market for Nvidia stock, based on the at-the-money strike price of 945, was about 91 points up or down. That’s found by adding the at-the-money call premium and a put premium for the May 24 contract.
Follow Ken Shreve on X/Twitter @IBD_KShreve for more stock market analysis and insight.
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