Option Trade 
NVIDIA Corporation (NASDAQ:NVDA) Calls
Monday, February 06, 2017

** OPTION TRADE: Buy the NVDA MARCH 17 2017 120.000 call at approximately $5.00. Place a pre-determined sell at $10.00.

Note: No protective stop losses added -- but if you wish to do so make it $2.00.

Also Note: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

NVIDIA Corporation (NASDAQ:NVDA), the graphics chipmaker, is expected to continue its hot streak when it reports Q4 results on Thursday. Analysts expect Nvidia earnings to rise 137% to 83 cents per share from 35 cents per share in the same quarter last year. Revenue, meanwhile, is expected to soar 50% to $2.1 billion, driven by strong product expansion into the artificial intelligence, self-driving cars, virtual reality and gaming markets.

And, short sellers are fleeing NVDA stock in droves ahead of this week’s report, cutting their losses short ahead of an expected rally that could see Nvidia stock top $120. And there’s still more rally fuel left in the tank for NVDA stock.

But expectations may be even higher, as EarningsWhispers.com places the whisper number at 87 cents per share for Nvidia.

Guidance may be an even bigger driver, with Nvidia providing graphics chips for the Nintendo Switch and entering partnerships with several automotive giants, including Audi, to revolutionize driverless cars.

This monster stock was one of the strongest performing stocks in 2016 and is trading just below its record high. Nvidia hit a record high of $119.93/share in 2016. The stock is prone to big moves after reporting earnings and can easily gap up if the numbers are strong.

Nvidia is benefiting from strong sales of graphics chips to gaming PCs and data centers. It also has major growth prospects in artificial intelligence and self-driving cars.

Shares tumbled in late December after short-seller Citron warned that Nvidia stock has risen too high and faces data center competition from Intel (INTC) and Advanced Micro Devices (AMD). Shares have since recovered nearly all their losses.

Nvidia is ranked No. 1 on the IBD 50 list of top-performing growth stocks.

NVIDIA Corporation has a 50-day moving average of $106.95 and a 200-day moving average of $78.73. The company has a market cap of $61.65 billion, a price-to-earnings ratio of 58.45 and a beta of 1.31. NVIDIA Corporation has a one year low of $24.75 and a one year high of $119.93.

Factors to Consider

As indicated by the epic rally in its stock last year, the graphics-processing chip specialist lies at the heart of several big-ticket growth markets that should transform the future of tech over the next decade. This growth will continue to manifest itself in strong revenue growth in the year ahead, but its expensive valuation is something of a cause for concern as well.

For those who aren't familiar with it, NVIDIA's history begins with its creation of the graphics processing unit, or GPU for short, in the late 1990s, which helped incite the rise of the PC gaming market. For much of its early corporate history, NVIDIA's products catered to niche markets like specialty gaming and supercomputing. Its foray into smartphone and tablet microprocessors proved largely unsuccessful in the early part of this decade as providers like Qualcomm and Samsung came to dominate the market.

It wasn't until recent years, when new high potential applications for NVIDIA's chips emerged, helping ignite its current wave of mass market growth. Today, NVIDIA's GPUs are powering tech trends de jour such as self-driving cars and artificial intelligence to great success.

In the last year alone, NVIDIA's gross margin increased by 200 basis points to 58.7%. Thanks to the operating leverage in its business model, this top-line margin expansion drove even larger gains in the company's operating margin, which increased by 850 basis points to 29.8%.

Many of NVIDIA's gains have been made in the past couple of years, driven by accelerating revenue and earnings growth. The gaming business has been strong, in part due to AMD's lackluster performance. But NVIDIA has also diversified, pushing its GPUs to be used for enterprise computing and automotive applications. The company began investing in machine learning and artificial intelligence early on, and that foresight is paying dividends today. During NVIDIA's latest quarter, its data center segment nearly tripled revenue year-over-year, coming close to a $1 billion annual run rate.               

NVIDIA's graphics chips are increasingly being used to accelerate workloads, and its automotive platforms are positioned to be an integral part of the self-driving car of the future. The stock is extremely expensive after gaining so much over the past few years, trading at the highest multiple of sales since its IPO. This may make continued gains tougher to achieve, but the company itself is firing on all cylinders.

Analysts Opinions

Ritholtz Wealth Management CEO Josh Brown claims that Nvidia is the stock to own when it comes to technology of the future...…

"If you're somebody that wants to own shares in a company that's got an explosive business in all of the secular growth stories of the future, Nvidia is one of the few names that checks every box from autonomous vehicles to AI, VR, machine learning," he claimed. "There's nothing they're not going to be a part of and in many cases the front-runner for design wins."

Also, RBC Capital Markets analyst Mitch Steves last Thursday reiterated his outperform rating on Nvidia stock and raised his price target to $124 from $115.

The market opportunity for Nvidia in data centers, specifically with artificial intelligence, is greater than Wall Street is currently modeling, Steves said in a report.

"Our analysis suggests that total Data Center revenue growth could come in closer to 100% (Street at 40%) this year," he said.

Harvey’s Options Volatility Indicator


NVIDIA is expected to set fresh all-time sales records this year and next. So, if you define "best year" as highest grossing, then barring some unexpected catastrophe, 2017 will certainly be NVIDIA's best year yet. It also deserves noting that NVIDIA's technological edge in many of these growth markets has given it impressive pricing power as well.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

** OPTION TRADE: Buy the NVDA MARCH 17 2017 120.000 call at approximately $5.00. Place a pre-determined sell at $10.00.

Note: No protective stop losses added -- but if you wish to do so make it $2.00.

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