Nvidia options haven't traded this cheaply ahead of the company's earnings report since 2021

Nvidia will report earnings after the closing bell on Wednesday.

Nvidia's quarterly earnings announcement has been a major stock-market event ever since the artificial-intelligence boom began in earnest with the introduction of ChatGPT in late 2022.

But as the company prepares to report its latest quarterly results after the closing bell on Wednesday, options traders are pricing in a notably muted reaction - even as the potential signal to be gleaned from Nvidia's (NVDA) latest numbers and guidance remains as important as ever for its own shares and for the broader U.S. equity market.

The implied move ahead of Nvidia's report stood at 5.4% recently, the lowest level heading into the company's earnings since August 2021, according to data from ORATS, a provider of data and analytics for options traders. The chart below compares Nvidia's implied move ahead of its earnings reports with how its stock performed in the following session.

"On the last eight reports the stock has moved less than the options implied, so option buyers have been overpaying for the event, and it seems the options prices have adjusted," said ORATS founder Matt Amberson.

Nvidia's earnings results and guidance are going to be "incredibly important" to the market, as investors will be looking for insights into "the landscape in AI," Larry Adam, chief investment officer at Raymond James, said in a phone interview on Tuesday.

For anybody betting that the latest results from Nvidia will help get the AI trade back on track, the relatively cheap options prices present an attractive opportunity.

The AI trade has been struggling as the PHLX Semiconductor Index SOX, of which Nvidia is the most heavily weighted component, has languished below its late June record high for two months.

Nvidia shares were up sharply on Tuesday. But the seven-day losing streak that the stock recorded through Monday's close marked the longest stretch of weakness since the current bull market began in October 2022, according to Bespoke Investment Group. It ties a stretch that ended in September 2022 for the longest losing streak since June 2019. Pricewise, Nvidia shares have seen little movement since the company's previous earnings report in May.

"The stock now trades like anything but a semiconductor stock," Bespoke analysts wrote in a report shared with MarketWatch. "Over the last several months, we've cited numerous examples where semiconductor stocks traded in one direction while [Nvidia] moved the other way."

Nvidia has struggled as concerns about circular financing in the AI space have grown. Meanwhile, companies like Cerebras Systems (CBRS), which went public earlier this year, have created cutting-edge AI chips of their own in a bid to take market share from Nvidia.

-Joseph Adinolfi -Christine Idzelis