NVIDIA surges 20% as AI trade narrows to one name

NVIDIA shares climbed roughly 20% in August, delivering most of the semiconductor sector's gains, after record Q2 revenue of $96.2 billion.

"The market rewarded the demand outlook. NVIDIA has made quarterly beats routine," said Matthew Tuttle, investment manager at Tuttle Capital Management.

The chipmaker's fiscal second-quarter revenue rose 106% from a year earlier, with Data Center revenue jumping 117% to $89.0 billion. GAAP diluted earnings per share came in at $2.46, up 128% year over year. The stock gained about 8% on Thursday after the results, and at least 16 brokerages raised their price targets, according to LSEG data.

The run has concentrated the AI trade into a single name. While NVIDIA surged, the broader semiconductor group stayed flat in August, and the PHLX Semiconductor Index remains about 20% below its June 22 record. The Nasdaq Composite rose 1.1% on Thursday, with the S&P 500 advancing 0.5% to 7,740, but gains concentrated in technology while decliners outnumbered gainers on the New York Stock Exchange by 1.31 to one.

A one-name market

The concentration raises a question for investors: take profits or add exposure? NVIDIA trades at about 33 times trailing earnings and roughly 22 times forward-year projections. Those multiples sit on revenue that grew about 71% over the past 12 months, but they also leave the stock exposed to any disappointment in the AI infrastructure buildout.

The 30-year U.S. Treasury yield above 5.2% adds another layer of pressure. For growth stocks whose valuations rest on profits years into the future, a long-term yield at two-decade highs reduces the present value of those earnings. The yield topped 5.33% on Tuesday — its highest level since June 2007 — and while it eased to about 5.18% on Wednesday, it has since climbed back above 5.2%. Oil prices also moved between gains and losses as investors tracked diplomatic efforts concerning the Strait of Hormuz, adding to the cross-asset pressure on equities.

What's at stake

NVIDIA returned approximately $26.0 billion to shareholders in Q2 through buybacks and dividends, with $99.0 billion remaining under its repurchase authorization. The company also announced a quarterly dividend of $0.25 per share payable October 1.

The company's Q3 outlook of $108 billion, plus or minus 2%, implies roughly 70% annualized growth for fiscal 2028, exceeding the 44% increase analysts surveyed by LSEG expected. NVIDIA said it is not assuming any Data Center compute revenue from China in its outlook and warned that shortages of memory components could restrict expansion.

For investors weighing the decision, the key question is whether NVIDIA's growth can justify its valuation as the AI buildout matures. The company's Vera Rubin platform is now in full production, with racks running at CoreWeave, Google Cloud, Microsoft Azure, Oracle Cloud Infrastructure and Nebius. But with the stock up 20% in a month and the sector's gains concentrated in one name, the risk of a pullback grows with each new high. Federal Reserve Chair Kevin Warsh's Jackson Hole speech on Friday will offer the next market-moving catalyst.

This article is for informational purposes only and does not constitute investment advice.