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What happened

Shares of graphics-chip company NVIDIA (NASDAQ:NVDA) have surged 43% so far this year as of June 22, according to data provided by S&P Global Market Intelligence. Two extremely strong quarterly reports, featuring double-digit revenue growth despite a weak PC market, are responsible for the stock's impressive run.

So what

NVIDIA has long been the market leader in the graphics-card industry, but the company managed to consolidate its lead over Advanced Micro Devices (NASDAQ:AMD) in the past two years. During the first quarter, NVIDIA's unit market share stood at nearly 80%, up from just 60% in early 2014.

These market-share gains, combined with a surge in high-end graphics card sales, have helped NVIDIA produce growth despite slumping PC sales. The company reported its fourth-quarter results in February, with revenue growing by 12% year over year and EPS of $0.52 beating analyst estimates by $0.20.

NVIDIA's first-quarter results announced in May were just as good. Revenue jumped 13%, and the company beat analyst estimates for earnings by $0.14. NVIDIA's data center business was the star of the show, posting 63% year-over-year growth, but gaming revenue also grew at an impressive 17% rate.

NVIDIA now finds itself the clear leader in the graphics card market with two significant growth businesses that should drive the company's results for years to come. The data-center business, which is booming thanks to demand from cloud-computing companies, generated $143 million of revenue during the first quarter, and the automotive business produced $113 million of revenue, up 47% year over year.

Now what

AMD is attempting to make a comeback in the graphics-card industry by focusing on the mainstream portion of the market, and I wouldn't be surprised to see NVIDIA lose some market share going forward. But NVIDIA still dominates the lucrative high end of the market, at least until AMD launches a new high-end card of its own.

While NVIDIA's results have been impressive, the stock is now extremely expensive. With a market capitalization of about $25 billion, NVIDIA trades for 41 times last year's earnings. A significant chunk of high-margin licensing revenue is also about to potentially go away, with NVIDIA's deal with Intel ending next year. That makes NVIDIA stock even more expensive than it seems. NVIDIA has had quite the run this year, but the stock price seems to have gotten out ahead of the fundamentals.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.