Why Nvidia Stock Jumped Again After Earnings

It seems Nvidia (NVDA 1.38%) shares can't stop moving higher. After reporting fiscal 2024 second-quarter earnings last night, the stock popped nearly 7% in early trading. Some of that gain faded, but shares remained higher by 3.5% as of 10:20 a.m. ET.

That rise comes with the semiconductor company's stock having already soared about 230% year to date.

Investor excitement for the already highly valued stock isn't hard to explain, though. Sales are growing exponentially, and no one knows where they will plateau. The demand for chips to power artificial intelligence (AI) has Nvidia's data center segment soaring.

After surprising investors in the last quarter with sales of over $7 billion and guidance for a 50% jump to $11 billion in the most recent quarterly period, the company shocked the market once again. Nvidia generated $13.5 billion in sales and now predicts that will rise to $16 billion in the current quarter. That would represent year-over-year growth of 170%, with the driver being the data center segment.

As Nvidia CFO Colette Kress put it during the company's quarterly conference call, "Virtually every industry can benefit from generative AI." Kress added that, as demand remains extremely strong, Nvidia's supply partners have worked to ramp up capacity to satisfy the surging demand.

But Investors should not be blind to risks. One is competition. Advanced Micro Devices is expected to have a competing chip by the end of this year, for example. Other companies are working to develop what they need in-house.

Valuation is another risk. Nvidia's price-to-earnings (P/E) ratio is over 100. Even looking ahead to future earnings estimates, it remains high at over 50. The question will be when will the soaring sales level off. At that point, the stock might be in for a hefty correction. But there's no way to know when that will be, and the future uses of AI mean Nvidia should have a place in many portfolios, even at recent prices.