Updated from May 8

Shares of graphics chipmaker Nvidia ( NVDA) zoomed a day after the company reported earnings, with most investors shrugging off a slight sales shortfall and fixating on robust second-quarter sales guidance of 12% to 18% sequential growth.

The stock soared $3.73, or over 23%, to $19.79.

At Pacific Growth Equities, Brian Alger focused in on the outlook for improving Xbox sales, plus potential gains from the soon-to-debut NV35 high-end graphics chip for desktops. He boosted his fiscal 2004 sales target to $2.1 billion from $2.05 billion, while lifting earnings from $1.93 to $1.97. Alger called those estimates "conservative," saying he believes he might have to raise them again later in the year.

But not everyone on Wall Street was cheering: Several analysts said the company looked overvalued even before its wild ascent this morning. "We believe Nvidia's shares are more fairly valued at $10, given the annual revenue, gross margin and earnings declines and the competitive landscape, in which we believe 'good enough' integrated chipsets and drastically lower GPPU ASPs will cause long term weakness in the business model," wrote Ryan Beck's Brian Foote.

In the short term, says Foote, "speculators will celebrate" the penny upside surprise on earnings and increased revenue guidance. "But we point out that the 11-cent consensus estimate contrasts to 47 cents a year ago." Neither Foote's nor Alger's firm has an investment banking relationship with Nvidia.

Said Gabriel Erdi, a trader and analyst for the Marketocracy Technology Plus fund, "It really was a poor quarter, and I think people overlooked that." The fund had until recently had a stake in Nvidia rival ATI ( ATYT), which has been perceived as taking share from Nvidia, but it closed out after the stock climbed too high. Nvidia suffers from the same problem, says Erdi: "Especially after the move today, I don't think we would be following Nvidia unless they pulled back to more recent levels. Probably in the mid- to high teens, it might attract our interest."

On top of today's pop, the stock might get yet another boost when it releases details of the NV35 chip in the next week or so, he added -- furthering stoking its heady valuation.

In its report Thursday, Nvidia said it's gearing for a robust second quarter, with sales up 12% to 18% over the previous quarter. The chipmaker posted a penny upside on profit in its first quarter, while a slight sales shortfall underscored the company's painful top-line picture.

In the quarter ending in April, sales of $405 million were down 31% from last year's $582.9 million. Wall Street had been looking for $410 million on revenues.

Earnings of 12 cents a share tumbled far below last year's EPS of 47 cents a share, though they were a penny above expectations.

According to company guidance, sales in the second quarter should grow to between $454 million and $478 million, far above the analyst consensus estimate of $424 million. The increase stems from a seasonal rise in Xbox revenue and sales from the FX processor family.

Nvidia also said second-quarter gross margins may drop 1% to 2% due to low yields on a new processor. Also, operating expenses will rise 5% to 10% as depreciation costs on new equipment and software kick in, plus additional marketing expenses.

"The fact they maintained earnings on that little revenue was pretty impressive. It bodes well -- it's indicative that chipsets and mobile are getting better margins," says Jonathan Hykawy, an analyst at Harris Partners. "As far as guidance goes, I still believe we will have to wait and see. I'm not overly positive about the NV31 -- the mainstream product. What they haven't got right now is a truly effective competitor in the mainstream."

Hykawy said he might raise his target price a couple dollars, to around $11 -- a level well below the current stock price. And Hykawy said he isn't likely to lift his underperform rating given Nvidia's relatively steep valuation. At Thursday's close, even before posting double-digit after-hours gains, the stock was trading at nearly 30 times earnings.