Investors have had a tepid response to Nvidia's (NVDA 2.13%) earnings report for the second quarter of fiscal 2026 (ended July 27, 2025). Despite outpacing the consensus analyst expectations, the stock fell following the announcement.
While it recovered most of the immediate after-hours losses, Nvidia's report has likely left investors uncertain about how to view the semiconductor stock going forward. Knowing that, investors may be forced to address something about Nvidia stock that they might prefer to forget.
Image source: Nvidia.
What investors may not be admitting about Nvidia stock
Investors should come to terms with one fact: Despite its massive gains, Nvidia stock is likely to continue moving higher.
Admittedly, Nvidia's growth may be difficult to grasp. Most of its gains have come from the AI accelerator market, and OpenAI's initial release of GPT-4 in March 2023 sparked these increases.
The gains were nothing short of unprecedented. Since Nvidia's bottom in October 2022, its stock has increased by over 1,450%. That surge took its market cap to almost $4.4 trillion, making it the largest publicly traded company. Since investors have never seen a stock this large grow so much so quickly, an impulse to turn negative on Nvidia investments is arguably natural.
NASDAQ: NVDA
Key Data Points
Nvidia's enduring opportunity
Despite possible bearish impulses, Nvidia's numbers overwhelmingly indicate its investors should stay bullish. Here's why.
The data center segment, which designs its AI accelerators, was not even Nvidia's largest segment four years ago. Today, it accounts for 88% of the company's revenue, and this share is unlikely to decline. According to Grand View Research, the compound annual growth rate (CAGR) for the AI chip market is projected to be 29% through 2030.
Due to Nvidia's dominance in this area, its growth rate has far exceeded this market-growth rate in recent years. In the first half of fiscal 2026, revenue of $91 billion rose by 62%. This has slowed from prior quarters, and yes, investors tend to sour on a stock when growth rates slow, even if the previous rates of increase are unsustainable. However, that is still an unprecedented growth rate, considering Nvidia's massive size.
For that same period, Nvidia earned over $45 billion in net income. Interestingly, the 43% increase over the same period lags the revenue growth rate. This is likely because the cost of revenue surged 131% higher over the same period, primarily due to the costs associated with ramping up production to meet the unprecedented demand.
Nonetheless, Nvidia's earnings growth has kept the stock's valuation in check despite the aforementioned 1,450% stock returns in under three years. While its P/E ratio of 58 may seem high to more conservative investors, that level is not unusual for fast-growing stocks. Also, the 41 forward P/E ratio also points to a continuing trend of rising profits. When also considering that Nvidia authorized $60 billion in share repurchases, Nvidia stock looks increasingly inexpensive!
Additionally, Nvidia excluded China sales, given the political turmoil in that market. That market still comes with a lot of unknowns, but if it generates more revenue and profit for Nvidia, that could lead to further stock growth and a lower valuation. Amid such tailwinds, it is hard to stay mad at Nvidia and its stock.
Nvidia is a buy
Given Nvidia's dominance in AI accelerators and its unprecedented growth, the stock appears to be a buy today, although this bullish outcome may be difficult for some investors to accept.
Indeed, when it comes to the 1,450% return in under three years, the move is unprecedented for such a large company. Moreover, since investors often turn against stocks with slowing growth rates, some investors may be reluctant to buy more shares.
However, objectively speaking, there is nothing slow about Nvidia's growth. Considering the continued demand for AI accelerators and its market dominance, investors can likely expect the rapid revenue and profit increases to continue. When one also considers the stock's relatively low valuation, the evidence suggests staying bullish on Nvidia, even if one's emotions may say otherwise.
