Nvidia's Blowout Quarter Sets High Bar

Updated from 5:09 p.m. EDT

SAN FRANCISCO -- Booming sales of graphics chips doubled Nvidia's(NVDA Quote) profit in the second quarter.

But the record revenue and profit margins that Nvidia attained set the company up for a tougher third quarter, spooking some investors.

The chipmaker's sluggish sales forecast, and its acknowledgement that its internal inventories were running lean, pushed the stock down 1.5% to $45.44 in extended trading Thursday.

"When you look at the valuation here and how strong the stock's been performing in the last four months, the ability of the company to continue to beat and raise estimates has been one of the drivers," said Blake Fischer, an analyst at Stifel Nicolaus. "This throws a bit of a wrench in the works."

Stifel Nicolaus makes a market in shares of Nvidia.

Nvidia's stock has climbed more than 50% since the beginning of April and is currently trading near its 52-week high.

Nvidia projected that third-quarter sales will increase 5% to 7% sequentially. Analysts polled by Thomson Financial were expecting a 9% sequential revenue increase.

The lackluster guidance overshadowed a phenomenal second quarter at Santa Clara, Calif.-based Nvidia. Revenue from its notebook graphics chips increased 129% year over year, while desktop chips saw revenue jump 37%.

Nvidia soundly beat Wall Street's revenue expectations for the three months ended July 29, delivering $935.3 million in sales vs. the average analyst expectation of $860 million.