NVIDIA's Wednesday "Big Test": The Battle That Will Decide the Fate of the AI Bull Market Has Arrived

Nvidia will release its quarterly earnings after the market close on May 20th (Wednesday) Eastern Time, which is a key stress test in the current AI bull market cycle.

The semiconductor sector is severely overbought technically, with options positions heavily skewed toward bullish bets, coupled with the rare signal of "stock price and implied volatility rising together," significantly amplifying the two-way risks of this earnings window compared to previous instances.

Goldman Sachs TMT chief analyst Peter Callahan issued a briefing titled "Yellow Light" on Monday, pointing out that the Nasdaq 100 Index (NDX) and the Philadelphia Semiconductor Index (SOX) recorded their first down week of the quarter last week; the 10-year US Treasury yield rose to about 4.60%, the largest weekly increase in over a year; oil prices rebounded to around $109 per barrel; and the VIX rose in tandem.

He noted that, the core contradiction facing AI and semiconductor themes is: fundamentals remain strong, but technical pressures continue to accumulate.

In a recent report, options analysis firm SpotGamma pointed out that the market is showing a rare "rising stock prices and rising volatility" parallel pattern—normally, these two should have an inverse relationship. This signal indicates traders are chasing gains while also paying for protection against large swings.

Implied volatility for Nvidia's earnings has now reached 6%, with market attention highly focused on this timing.

The earnings results and forward guidance will directly test the market’s confidence in the supercycle of AI computing power. Given Nvidia’s high correlation with the semiconductor and broader tech sectors, its earnings performance—whether positive or negative—will trigger widespread market reactions.

Technical signals issuing the most extreme warning since 1999/2000

The magnitude and speed of this semiconductor rally have pushed technical indicators to historically overbought levels.

Goldman Sachs data shows that the SOX index has risen about 70% since its late March lows, adding over $5 trillion in market value along the way.

Driving factors include a phased easing of geopolitical tensions, better-than-expected corporate earnings—such as AMAT raising its full-year guidance beyond expectations, and Cisco (CSCO) achieving a 35% year-over-year increase in product orders—and increased investor confidence in AI computing demand; semiconductor industry earnings expectations have been raised by over 25% since the start of the year.

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 1999/2000 internet bubble.

He also noted that Goldman Sachs’ high-momentum factor portfolio has experienced 12 days this year with single-day moves of over ±5%, accounting for nearly 15% of the trading days; the rapid expansion of leveraged ETFs and options products further amplifies this two-way elasticity.

"Before this week’s earnings season (Nvidia on May 20th) ends and the summer trading begins, it’s worth keeping these tactical dynamics in mind," Callahan wrote. Goldman Sachs’ overall trading desk maintains a medium-term constructive stance on AI and semiconductor themes, but advises investors to remain cautious about technical challenges on a tactical level.

Nvidia earnings: Forward guidance may be more critical than quarterly results

Market sentiment remains optimistic about Nvidia’s fundamentals, but recent stock price movements have somewhat overextended expectations.

According to Goldman Sachs’ preview report, analysts generally expect Nvidia’s revenue this quarter to beat market forecasts by about $2 billion—where the company’s historical beat margins are usually between 2% and 3%.

Market is more focused on the forward guidance for the next quarter, with consensus estimates around $86 billion, representing about a 9% quarter-over-quarter increase.

Other focus areas include whether Nvidia’s approximately $1 trillion data center revenue guidance has further upside potential, and the narrative of accelerated demand for Agentic AI inference—especially for its pure CPU rack products expected to ship in the second half of 2026.

Looking at recent price trends, Nvidia has risen for 7 consecutive trading days, with a total increase of 20%, the longest streak in nearly two years; since the late March lows, it has added about $1.7 trillion in market value.

However, Goldman Sachs data also shows that in the five trading days following Nvidia’s last five earnings reports (T+1), four saw declines, and since May 2022, large single-day gains triggered by earnings have actually never occurred.

Options market: Extreme bullish bets and tail hedges in place simultaneously

The options positioning reveals a set of internally contradictory signals.

According to SpotGamma data, the overall positioning remains extremely bullish, with traders continuously rolling Nvidia call options to higher strike prices, with call skew remaining at the high end of the 90-day historical range, and very limited demand for downside protection.

Data cited by 22V Research shows that last Friday, the nominal volume of S&P 500 call options hit a record $2.6 trillion, with calls accounting for 60% of total options volume; the Philadelphia Semiconductor Index RSI also rose to levels not seen since March 2000.

Meanwhile, hedging against downside risks is quietly expanding.

SpotGamma pointed out that large open interest in put options around the S&P 500 (SPY), semiconductor ETFs (SMH), and DRAM-related assets has increased significantly, concentrated in deep out-of-the-money strike prices, indicating these are more for tail risk hedging rather than pure directional bets. "Market participants are not bearish on Nvidia, but preparations for downside scenarios are not insignificant," SpotGamma wrote, "any directional shift could quickly impact broader markets."

SpotGamma added that since the March lows, Nvidia has gained over 35%, and the scale of current bullish options positions means that if earnings disappoint or trigger large profit-taking, a significant directional reversal could occur.

Market breadth risks: rally supported by a few stocks

Amid the strong performance of semiconductor and large tech stocks, the overall participation in the US stock market is lacking, creating structural concerns.

Peter Callahan noted in his report that although the S&P 500 has risen about 8% year-to-date, only about 52% of its components are in positive territory. Areas notably lagging include residential real estate, medical devices, engineering construction with no government exposure, federal IT services, software and services, independent power producers, restaurant chains, commercial real estate brokers, and insurance brokers.

Callahan admitted that when examining these sectors’ charts, he questions whether the current market performance truly reflects "health," or if it is merely a "funding source" effect where investors are forced to concentrate funds into a few large-cap AI stocks.

Oppenheimer’s equity derivatives team also pointed out that only about one-fifth of S&P 500 components have outperformed the index over the past month, with the dispersion index reaching its highest level in over a year, and implied correlations near their lowest levels since the start of the year.

Goldman Sachs’ prime brokerage data also shows recent signs of "risk withdrawal" from the tech sector.