Nvidia will release its quarterly report after the market closes on Wednesday, May 20th (Eastern Time), a key stress test for the current AI bull market cycle.
The semiconductor sector is technically severely overbought, with option positions highly bullish, and the rare signal of "price and implied volatility rising in tandem" has significantly amplified the two-way risks during this earnings season compared to the past.
Goldman Sachs' chief TMT expert, Peter Callahan, released a briefing on Monday titled "Yellow Light," noting that the Nasdaq 100 (NDX) and Philadelphia Semiconductor Index (SOX) recorded their first weekly declines of the quarter last week; the 10-year U.S. Treasury yield rose to about 4.60%, marking its biggest weekly gain in over a year; oil prices rebounded to about $109 per barrel; and the VIX also rose.
He pointed out that the core contradiction currently facing the AI and semiconductor themes is that the fundamentals remain strong, while technical pressure continues to accumulate.
In a recent report, options analysis firm SpotGamma pointed out that the market is experiencing a rare parallel pattern of "rising stock prices and increasing volatility"—normally, the two should be inversely related. This signal indicates that traders are paying a protection premium for significant volatility while chasing rising prices.
Nvidia's earnings report has already implied volatility of 6%, and the market is highly focused on this point in time.
The earnings report and forward guidance will directly test the market's predictions of the AI computing power supercycle. Given Nvidia's high correlation with the semiconductor and broader technology sectors, its earnings performance, whether positive or negative, will trigger widespread market reactions.
1. Technical analysis issues the most extreme warning since 1999/2000.
The magnitude and speed of this round of semiconductor price increases have pushed the technical indicators to historically overbought levels.
Goldman Sachs data shows that the SOX index has risen by about 70% since its low point at the end of March, adding more than $5 trillion in market capitalization along the way.
The driving factors include a temporary easing of geopolitical tensions, better-than-expected corporate earnings—for example, AMAT raised its full-year guidance by more than expected and CSCO's product orders grew by 35% year-on-year—and increased investor confidence in the demand for AI computing power; semiconductor industry earnings forecasts have been revised upward by more than 25% year-to-date.
However, Peter Callahan specifically pointed out that the SOX index is currently about 60% above its 200-day moving average, a deviation not seen since the peak of the dot-com bubble in 1999/2000.
He also pointed out that Goldman Sachs' high momentum factor portfolio has experienced daily fluctuations of more than ±5% on 12 trading days this year, accounting for nearly 15% of the total trading days; the rapid expansion of leveraged ETFs and options products has further amplified this two-way elasticity.
"It's worth keeping these tactical dynamics in mind before the earnings season ends this week (Nvidia's earnings call on May 20) and we head into summer trading," Callahan wrote. Goldman Sachs' trading desk maintains a generally constructive medium-term stance on the AI and semiconductor themes, but tactically advises investors to remain cautious about technical challenges.
2. Nvidia Earnings Report: Forward Guidance May Be More Key Than Current Quarter Results
The market remains optimistic about Nvidia's fundamental prospects, but recent stock price movements have already factored in some of those expectations.
According to Goldman Sachs' Nvidia earnings preview report, analysts generally expect Nvidia's revenue this quarter to exceed market forecasts by about $2 billion - the company's historically, the margin of error is usually between 2% and 3%.
The market is more focused on forward guidance for the next quarter, with analysts currently expecting around $86 billion, a quarter-on-quarter increase of about 9%.
Other areas of focus include whether Nvidia's cumulative data center revenue guidance of approximately $1 trillion has room for further upward movement, and the narrative of accelerating demand for Agentic AI inference—especially its pure CPU rack products expected to begin shipping in the second half of 2026.
Judging from recent price trends, Nvidia has risen for seven consecutive trading days, with an increase of 20%, which is the longest winning streak in nearly two years; since the low point at the end of March, it has added approximately $1.7 trillion in market value.
However, Goldman Sachs data also shows that Nvidia's stock price fell on the second trading day (T+1) after its earnings report was released in four of the past five instances. Since May 2022, there has never been a significant single-day increase triggered by an earnings report.
3. Options Market: Extreme bullish bets and tail hedging are in place simultaneously.
The options position structure presents a set of inherently contradictory signals.
According to SpotGamma data, the overall position remains extremely bullish, with traders continuing to roll Nvidia call options toward higher strike prices. Call skew remains at the high end of the 90-day historical range, while downside protection demand is extremely limited.
According to data cited by 22V Research, the notional trading volume of S&P 500 call options hit a record high of $2.6 trillion last Friday, with call options accounting for as much as 60% of the total options trading volume; the Philadelphia Semiconductor Index RSI also rose to its highest level since March 2000.
At the same time, hedging strategies to address downside risks are also quietly underway.
SpotGamma points out a significant increase in large put option structures and buying activity surrounding the S&P 500 (SPY), Semiconductor ETF (SMH), and DRAM-related assets, concentrated in deep out-of-the-money strike prices. This suggests their function is closer to tail risk hedging than simple directional betting. "Market participants are not necessarily bearish on Nvidia, but their preparations for a downside scenario are not negligible," SpotGamma writes in its report. "Any directional shift will almost certainly have a rapid ripple effect across the wider market."
SpotGamma added that Nvidia has risen more than 35% since its March lows, and the current size of call option positions means that if earnings disappoint the market or trigger large-scale profit-taking, it could trigger a significant directional reversal.
4. Market breadth risk: The rally is being supported by a few stocks.
Amid the strong performance of semiconductor and large-cap tech stocks, the overall lack of participation in the US stock market is creating structural concerns.
In his report, Peter Callahan pointed out that although the S&P 500 has risen by about 8% year-to-date, only about 52% of its constituent stocks have recorded positive returns. Sectors that have significantly lagged behind this year include residential real estate, medical devices, engineering and construction without government exposure, federal IT services, software and services, independent power producers, restaurant chains, commercial real estate brokerage, and insurance brokerage, among others.
Callahan admitted that when examining the charts of these sectors, he questioned whether the current market performance reflected overall "health" or was merely a "source of funds" effect where investors were forced to concentrate their funds in a few large-cap AI stocks.
Oppenheimer's equity derivatives team also pointed out that only about one-fifth of the S&P 500 stocks outperformed the index in the past month, the dispersion index rose to its highest level in more than a year, and the implied correlation was close to its low point since the beginning of the year.
The latest data from Goldman Sachs' institutional brokerage (PB) division also shows that the technology sector has recently seen a clear "risk withdrawal" movement.
