Nvidia Stock Pops After Another Blowout Earnings. Just How High ...

Three months ago, Nvidia (NVDA 3.17%) delivered what one analyst called "guidance for the ages." The graphics processing unit (GPU) maker projected that its second-quarter revenue would be in the ballpark of $11 billion.

Nvidia faced lofty expectations as the company reported its Q2 results after the market closed on Wednesday. And it didn't disappoint. 

The stock popped after another blowout earnings report, jumping nearly 10% in after-hours trading. Just how high can this all-star stock fly?

It turns out that Nvidia's management sandbagged with its "guidance for the ages." Instead of reporting around $11 billion in Q2 revenue, the company actually posted revenue of $13.5 billion. The total more than doubled Nvidia's revenue generated in the prior-year period. 

Nvidia's data center revenue alone in Q2 soared 141% sequentially and 171% year over year to $10.3 billion. The company's gaming revenue jumped 22% year over year to nearly $2.5 billion. Automotive revenue rose 15% year over year to $253 million.

The only negative spot was professional visualization, which saw sales fall 24% year over year to $379 million. However, even this number reflected a 28% increase from the previous quarter.

With those impressive revenue figures, you'd think Nvidia's profits would have skyrocketed too. And you'd be right. The company generated earnings of nearly $6.2 billion in the second quarter, more than triple the level from Q1 and almost 8.4 times higher than net income recorded in the prior-year period. 

Nvidia founder and CEO Jensen Huang proclaimed, "A new computing era has begun." He said that companies across the world are moving from general-purpose computing to generative artificial intelligence (AI) and accelerated computing. Huang added, "The race is on to adopt generative AI."

Speaking of racing, Nvidia's revenue appears to be on track to pick up momentum. The company expects third-quarter revenue will be close to $16 billion. That's 27% higher than the consensus Wall Street estimate prior to Nvidia's Q2 update. It even topped the most optimistic estimate among the 33 analysts surveyed by Refinitiv of nearly $15.2 billion.

Nvidia isn't resting on its laurels. The company has already announced several new products that are either already available in Q3 or soon will be. They include the L4OS GPU that can be used in AI servers and Spectrum-X, which helps boost the performance of AI clouds.

The GH200 Grace Hopper Superchip, which is designed to run complex AI and high-performance computing workloads, is also already shipping in Q2. Nvidia plans to roll out a second-generation version of the chip in the second quarter of 2024.

Before Nvidia's Q2 update, Wall Street's consensus 12-month price target for the stock reflected an upside potential of a little over 11%. But Nvidia's share price nearly reached the existing average price target in after-hours trading. The company's impressive results and optimistic outlook will almost certainly cause some analysts to up their targets. 

The most optimistic analyst (again, before the blowout Q2 earnings report) projected that Nvidia stock could soar close to 70% higher over the next 12 months. If the chipmaker's revenue continues on its current growth trajectory, that bullish target just might be attainable.

However, there are reasons to be skeptical that's going to happen. Right now, Nvidia is enjoying a perfect storm with surging demand for its AI chips coupled with limited supply -- a dream scenario. That dream won't last forever.

Several big companies, including Advanced Micro Devices, Amazon, Microsoft, and Alphabet, are developing their own chips for AI training and inference. While Nvidia is likely to continue to dominate the market, these competing efforts could impact the current dynamics that are creating such a massive tailwind for the company.

There's also that pesky detail of Nvidia's valuation. The stock already traded at 19 times projected 2025 sales before the Q2 update. At best, much of Nvidia's growth is already baked into the price. At worst, its price is well ahead of the company's realistic growth prospects.

Nvidia stock could rise a lot higher from here. To do so, though, the company must continue to deliver revenue growth above expectations. That's easier said than done.