Shares were up nearly 10% Friday morning, to $35.57, after reporting a solid fiscal first quarter Thursday after hours.
Nvidia posted $1.3 billion in revenue on earnings of 46 cents per share, flying past Wall Street's estimates of $1.15 billion in revenue and 32 cents per share. The chipmaker's second-quarter guidance of about $1.35 billion in revenue also beats the consensus of $1.28 billion.
"It's been an incredible stock," says Macquarie Capital analyst Deepon Nag via telephone.
The automobile market has been a solid source of growth for the company, but the data center sector was the shining star in the past quarter, Nag says, adding that the data center segment's "deep learning" products will be a source of Nvidia's upside if it can maintain its rate of growth.
Year over year, the data center unit grew about 63%, the auto market increased 47% and gaming went up 17% during the latest quarter.
Deep learning refers to a computing model that uses algorithm throughout neural networks to look at an existing set of data then to make connections about other sets of data. Tech giants have increasingly adopting deep-learning technology across various frameworks including data centers -- facilities equipped with networks and servers that support IT needs of organizations.
For example, Nvidia currently powers IBM's (IBM) - Get Report Watson and Facebook's (FB) - Get Report machine learning server. It also provides image-rendering chips called graphics-processing units, or GPUs, to Microsoft (MSFT) - Get Report , Amazon (AMZN) - Get Report , Alibaba Group (BABA) - Get Report and Baidu (BIDU) - Get Report .
"Deep learning is the hottest technology, and Nvidia has cornered that market," Nag adds.
The biggest driver in the stock performance over the past year or so has been Nvidia's PC gaming business, fueled by hardcore gamers who want high-end graphics capabilities. While the PC-gaming market historically traded in line with the broader PC market, the former has also decoupled from the latter.
The semi has been on a run due to its choice to specialize in the niche PC-gaming market and decision to enter the artificial intelligence arena, says Nag, who has an outperform rating on the stock with a price target of $45.
Nvidia may experience near-term hiccups as it executes on the introduction of new GTX 1080 and 1070 products on its Pascal architecture, but it is well-positioned to lead in the niche PC gaming and artificial intelligence markets.
"They really are innovating ahead of their competitors. Other people can catch up, but they remain in the driver's seat," Nag adds.
Nvidia will continue to press higher for the remainder of the year thanks to growth in PC gaming, increasing content in auto and improving product mix from GPUs, wrote Wedbush Securities analyst Betsy Van Hees in a Friday note, adding that the valuation of the stock no longer looks stretched.
"We believe investors will be pleased with these results as NVDA continues to drive GPU adoption in its high-growth platforms," wrote Oppenheimer analyst Rick Schafer in a note Thursday night. Schafer has a perform rating on the stock with no price target.
MKM Partners analyst Ian Ing wrote in a Friday note that the GPUs have "unique exposure" to a long list of promising applications including core gaming, data center acceleration, virtual reality, autonomous cars and drones. These applications have been outperforming the PC and smartphone markets.
GPU isn't a "zero sum game," Ing noted. A strong demand market for the latest GPU cards could also be a boost to Advanced Micro Devices (AMD) - Get Report . Advanced Micro will also be a beneficiary of VR trends, added Ing, who has a buy rating on the stock with a price target of $43.