Original Author: Zhang Yaqi
Original Source: Wall Street Insights
Nvidia is set to release its quarterly report after the US market closes on Wednesday, May 20th (Eastern Time), serving as a crucial stress test for the current AI bull market cycle. The semiconductor sector's technically overbought condition, heavily bullish options positioning, and the rare signal of "stock price and implied volatility rising simultaneously" have significantly amplified the two-way risk around this earnings window compared to the past.
In a briefing titled "Yellow Light" issued on Monday, Peter Callahan, Goldman Sachs' TMT Chief Specialist, pointed out that the Nasdaq 100 Index (NDX) and the Philadelphia Semiconductor Index (SOX) recorded their first weekly decline of the quarter last week; the 10-year Treasury yield rose to around 4.60%, marking its largest weekly increase in over a year; oil prices rebounded to approximately $109 per barrel; and the VIX moved higher concurrently. He noted that the core contradiction currently facing the AI and semiconductor themes is: fundamentals remain robust, while technical pressure continues to accumulate.
Options analytics firm SpotGamma highlighted in a recent report that the market is exhibiting a rare parallel pattern of "rising stock prices alongside climbing volatility"—typically, these two should have an inverse relationship. This signal indicates that traders are chasing gains while simultaneously paying a premium for protection against significant volatility. The implied move around Nvidia's earnings is currently priced at +/-6%, with market attention highly focused on this event.
The earnings results and forward guidance will directly test the market's conviction in the AI computing super-cycle thesis. Given Nvidia's high correlation with the semiconductor sector and broader tech market, its earnings performance, whether positive or negative, is expected to trigger widespread ripple effects across the market.
Technical Indicators Flash Most Extreme Warning Since 1999/2000
The magnitude and speed of the recent semiconductor rally have pushed technical indicators to historically overbought extremes.
Goldman Sachs data shows the SOX index has surged approximately 70% from its late March low, adding over $5 trillion in market value along the way. Driving factors include a temporary easing of geopolitical tensions, better-than-expected corporate earnings—such as AMAT raising its full-year guidance more than anticipated and CSCO achieving 35% year-over-year growth in product orders—as well as investor confidence in AI computing demand; earnings expectations for the semiconductor industry have been revised upwards by over 25% year-to-date.
However, Peter Callahan specifically pointed out that the SOX index currently trades about 60% above its 200-day moving average, a deviation not seen since the peak of the 1999/2000 internet bubble. He also noted that Goldman Sachs' high momentum factor portfolio has experienced 12 trading days with daily moves of ±5% or more this year, accounting for nearly 15% of all trading days; the rapid expansion of leveraged ETFs and options products further amplifies this two-way volatility.
"It's worth keeping these tactical dynamics in mind ahead of the summer trading period, after this week's key earnings event (Nvidia on May 20) concludes," Callahan wrote. While Goldman's trading desk maintains a constructive medium-term view on the AI and semiconductor themes, it tactically advises investors to remain cautious regarding technical headwinds.
Nvidia Earnings: Forward Guidance May Be More Crucial Than Quarterly Results
Market optimism about Nvidia's fundamental prospects remains, but recent stock price movements have already priced in some of these expectations.
According to Goldman Sachs' Nvidia earnings preview, analysts generally expect the company's revenue for this quarter to exceed consensus estimates by approximately $2 billion—its typical historical beat margin has been around 2% to 3%. The market is more focused on forward guidance for the next quarter, with the current analyst consensus around $86 billion, implying a sequential increase of about 9%. Other key areas of focus include: potential for further upward revision to Nvidia's ~$1 trillion cumulative data center revenue target, and the narrative of accelerating Agentic AI inference demand—particularly its pure CPU rack product expected to begin shipments in the second half of 2026.
From a recent price action perspective, Nvidia has risen for seven consecutive trading days, gaining 20% during this stretch, marking its longest winning streak in nearly two years; it has added roughly $1.7 trillion in market capitalization since its late March low. However, Goldman data also shows that on the trading day following Nvidia's last five earnings reports (T+1), the stock declined four times. Since May 2022, a single-day surge triggered by earnings has not occurred.
Options Market: Extreme Bullish Bets and Tail Hedging Deployed Simultaneously
Options positioning reveals a set of inherently contradictory signals.
According to SpotGamma data, overall positioning remains heavily skewed towards bullish bets, with traders consistently rolling Nvidia call options to higher strike prices. The call skew remains at the high end of its 90-day historical range, while demand for downside protection is extremely limited. Data cited by 22V Research shows that nominal S&P 500 call option trading volume hit a record $2.6 trillion last Friday, with call volume accounting for 60% of total options activity; the RSI for the Philadelphia Semiconductor Index also rose to its highest level since March 2000.
Meanwhile, hedging against downside risks is also quietly underway. SpotGamma points out that significant put option structures and buying activity have increased noticeably around the S&P 500 (SPY), semiconductor ETF (SMH), and DRAM-related assets, concentrated in deep out-of-the-money strike price ranges, indicating their function is more akin to tail risk hedging rather than pure directional bets. "Market participants are not bearish on Nvidia, but preparation for downside scenarios is non-trivial," SpotGamma wrote in its report, "Any directional shift is likely to quickly spill over into the broader market."
SpotGamma adds that Nvidia has rallied over 35% from its March low, and the size of current call option positions implies that disappointing earnings or a large-scale profit-taking event could potentially trigger a significant directional reversal.
Market Breadth Concerns: Rally Supported by a Handful of Stocks
Beneath the strong performance of semiconductor and large-cap tech stocks, the lack of broad market participation is forming a structural worry.
Peter Callahan noted in his report that although the S&P 500 is up about 8% year-to-date, only about 52% of its constituents are in positive territory. Sectors significantly lagging this year include residential real estate, medical devices, engineering & construction without government business exposure, federal IT services, software & services, independent power producers, restaurant chains, commercial real estate brokerage, and insurance brokerage, among others.
Callahan admits that when examining the charts of these sectors, it makes him question whether the current market performance reflects overall "health" or simply a "funding source" effect, where investors are forced to concentrate capital in a few large-cap AI stocks. Oppenheimer's equity derivatives team similarly pointed out that only about one-fifth of S&P 500 constituents have outperformed the index over the past month, with the dispersion index rising to its highest level in over a year, while implied correlation remains near year-to-date lows. Latest data from Goldman Sachs' Prime Brokerage (PB) desk also shows a clear "risk-off" move in the tech sector recently.
