Volatility Jackpot: 3 Ways to Cash in on the Coming Earnings Chaos


  • These three stocks could make interesting earnings volatility plays:
  • CrowdStrike (CRWD): Interest rates being high could imperil CrowdStrike’s future growth.
  • Palantir (PLTR): The data analytics firm’s AI Platform will be under scrutiny this earnings season. 
  • Nvidia (NVDA): Strong earnings off of AI will likely help NVDA shares soar again.
stocks for earnings volatility - Volatility Jackpot: 3 Ways to Cash in on the Coming Earnings Chaos

Source: Lightspring / Shutterstock.com

The end of the first quarter means another volatile earnings season. United States equities ended Q1 on a high note after an overall positive Q4 earning season. The two major U.S. stock market indices — the S&P500 and the Nasdaq — ended the first quarter up 10.2% and 9.1%, respectively. The small-to-mid cap index, the Russell 2000, trailed behind, only having risen 4.8% for the first quarter. While positive earnings and market trends, such as the generative AI craze, may have been enough to lift stocks for earnings volatility to new heights, macroeconomic volatility has come back into view. Moreover, the high trading multiples U.S. equities have risen to has also led to a lot of selling pressure in Q2.

Yesterday, Jerome Powell mentioned because of persistent inflation, interest rates would be higher for a longer period of time. This level of macroeconomic uncertainty could bring heavy amounts of volatility to the coming earning season. In this article, I’ll go through three stocks for earnings volatility.

CrowdStrike (CRWD)

A sign with the Crowdstrike (CRWD) company logo
Source: VDB Photos / Shutterstock.com

CrowdStrike (NASDAQ:CRWD) is a cybersecurity firm that specializes in cloud-based endpoint protection and threat intelligence services. The company’s Q4 earnings underscored how a cybersecurity firm could grow even during economic uncertainty. In particular, CrowdStrike beat earnings Wall Street estimates and saw top-line growth in 2023, reaching 54% on a year-over-year basis, while revenue for the quarter increased 45% year-over-year. Despite the cybersecurity industry as a whole struggling with growth, CrowdStrike has continued to significantly improve top-line figures year-over-year. The company has also avoided job cuts unlike companies like Zscaler (NASDAQ:ZS) and SentinelOne (NYSE:S).

Cybersecurity is a space that is pretty sensitive to macroeconomic machinations. Once businesses feel the overall environment is cloud, they could delay or forgo any technological upgrades, which could slowdown business for companies like CrowdStrike. The cybersecurity firm has been able to blow past earnings estimates. For the company’s Q4 2023 earnings report, CrowdStrike’s revenue beat estimates modestly while its EPS was 15% higher than what analysts had been predicting, according to Koyfin. The firm’s share skyrocketed more than 10% after its earnings release.

Given if the company beats estimates again and reiterates strong guidance, especially during times of uncertainty, CRWD shares could skyrocket again.

Palantir (PLTR)

Palantir (PLTR) logo on data network background, imaginary location in the future. Must-Buy Stocks on Major Deals
Source: Spyro the Dragon / Shutterstock.com

Palantir (NYSE:PLTR) is another option among stocks for earnings volatility. The data analytics firm released its AI Platform in the latter half of 2023, and subsequently, during the company’s Q3 results, overall revenue increased 17% to $558 million from $478 million a year earlier. However, most notably, Palantir’s “U.S. Commercial business segment” increased revenue figures by 37% on a year-over-basis driven by demand for Palantir’s Artificial Intelligence Platform. The data analytics firm’s AIP can deploy commercial and open-source large language models onto internally held data sets and, from there, recommend business processes and actions.

This next earnings season for Palantir will, no doubt, focus on AIP again. Analysts will be looking for any traction that product has gained from potential customers. The company beat estimates in its last earnings release, which sent the stock soaring to a record stock price.

The question is not only whether or not Palantir could blow away estimates but also if the market continues to accept Palantir’s high stock-based compensation. In the company’s Q4 report, for example, SBC came in at $132.6 million and was the largest add-back line-item to get the “adjusted operating profit” figure. Palantir’s adjusted operating profit margin sat around 34% in Q4. If we count SBC as a real expense, margins would have been around 11%. This is similar for its adjusted EBITDA figure.

Due to these concerns, there could definitely be some earnings volatility on PLTR shares based on how analysts view the company’s earnings figures.

Nvidia (NVDA)

Nvidia (NVDA) logo on a microchip. stocks for earnings volatility
Source: Antonio Baccardi / Shutterstock.com

Nvidia (NASDAQ:NVDA), the preeminent designer of AI-powering graphics cards, will also likely receive a lot of earnings volatility. The chipmaker is by far the leader in the AI chip space, and it’s easy to see why. Nvidia’s chip design prowess and ample R&D expense, which was $7.3 billion in 2023 (27.2% of 2023 revenue) and has floated between 1/5 and 1/4 of revenue over the past few years, has allowed Nvidia to effectively snap up 81% of the market for AI chips. Nvidia’s new flagship processors dubbed “Blackwell” will likely help Nvidia to maintain its lead against competitors.

For this earnings season, analysts will likely be focused on how Nvidia’s revenue and EPS figures will stack up against current estimates. Guidance will also be a major factor. Given interest rates are to be higher for longer, I’m sure analysts will be wondering if Nvidia’s growth rate will be sustainable. NVDA’s shares soared in double-digit territory and could do so again.

On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Tyrik Torres has been studying and participating in financial markets since he was in college, and he has particular passion for helping people understand complex systems. His areas of expertise are semiconductor and enterprise software equities. He has work experience in both investing (public and private markets) and investment banking.

Article printed from InvestorPlace Media, https://investorplace.com/2024/04/volatility-jackpot-3-ways-to-cash-in-on-the-coming-earnings-chaos/.

©2024 InvestorPlace Media, LLC