Nvidia earnings crushed estimates: How high can the stock go?

Nvidia (NVDA) shares roses after the company’s second quarter earnings smashed expectations on both the top and bottom lines. But how sustainable is the stock's growth? Interactive Brokers Chief Strategist Steve Sosnick and Yahoo Finance Tech Editor Dan Howley join Yahoo Finance Live to discuss.

On Nvidia’s earnings call, the company explained how the technology is being used and the partnerships it has with other companies. Howley explains, “there are means to an end here, where real products come of this” and these products, “will benefit consumers, as well as regular workers.”

In the 1990s, tech companies Qualcomm (QCOM) and Cisco (CSCO), saw their stocks rise, but “the market got way ahead of itself,” Sosnick says, and the stocks ultimately dropped. For Nvidia, “there are other headwinds in terms of valuation that we have to consider. And the question is, will this deliver and will this deliver to bottom lines, not just be a great technology?” Sosnick explains.

Video Transcript

- And what I was struck by on the call-- I mean, in addition to-- you and I have spoken to Jensen Huang before, and he is very good at sort of spinning a grand narrative and has delivered on that narrative, at least in some measure. But I was also struck that the company gave specific examples of its partnerships and how the tech is being used sort of concretely, which I thought was interesting.

So talk to us. Like, how big a deal is this to sort of answer some of the stuff that Steve was talking about?

DAN HOWLEY: Yeah, I think for a lot of companies, the hyperscalers kind of are looking at this as almost a kind of, if not an extension of cloud computing, then a new iteration on cloud computing. Now obviously it's two different types of technologies, right? But when you look at the way it's being spoken about from NVIDIA's side of things, from Microsoft's side of things, from Google's side of things, Meta, Amazon, it seems as though this is a kind of a new generation.

And so what Microsoft's-- you know, just going back to their earnings, tried to lay out--

- And when we talk about hyperscalers, we're talking about--

DAN HOWLEY: Big cloud companies.

- Like a Microsoft.

DAN HOWLEY: Right. Meta outside of that. But still in the generative AI side of things. But when we go back to Microsoft's earnings and Google's earnings, what they did was they tried to encapsulate what generative AI is doing for them. How they're using it, what customers are starting to get into it. And so Microsoft wanted to make sure that people knew that it's starting to pay off for them.

Didn't get too specific in numbers, but we saw that when they priced their-- I believe it was Microsoft 365 Copilot, shares just blew up. It was $30 per person per month. So Google tried to do the same thing. So we're seeing these companies now come out and explain, you know, it's not just my kid's going to type this in and maybe, you know, cheat on his exam or whatever.

But there are means to an end here where real products come of this. And it will benefit consumers, as well as regular workers. But I think that's something that, you're right, that Jensen was really, really particular about ensuring that shareholders knew that, in their mind, that it's not a fad. Now, you know, there have been faddish things that Nvidia's not necessarily pointed to before but fallen, let's say, victim to the whole, you know, crypto craze obviously. They were really stung by that.

The metaverse and, you know, the VR, AR, they're still working with that. But you know, it was kind of spoken of as this next big trend. But it seems as though AI is going to be, as Steve said, it's not new. It's the type of AI. This is not like, you know-- I mean, we've talked about this before. Siri is AI, guys. I know it's not great, but it's AI. I don't know what to tell you.

But this is a new version of AI. And I think, you know, how that eventually is worked out is what Nvidia is trying to put forward, as well as the likes of Microsoft and Google.

- Steve, we had ServiceNow CEO Bill McDermott tell us that this is like an iPhone moment for enterprise software.

- Yeah, Jensen has said that, too.

- Exactly. And ServiceNow, one of the companies that got called out on the call last night, too, and some of the partnerships with Nvidia, when you see this many mega-cap tech companies having a massive partnership for a transformational technology as generative AI, does that tell us for the equity markets that these valuations, even if they might seem lofty right now, are actually substantive and warranted at the same time?

STEVE SOSNICK: I guess that really depends on how you think this proceeds. You know, the positive example is, I couldn't-- you know, I thought Nvidia investors had said had set such a high bar for themselves that it was impossible to leap over. And yet they did and cleared it by a wide margin.

On the other hand, you know, those of us who were around during the, you know, the '90s, the internet and, you know, Cisco being the backbone of the internet and Qualcomm being the power of cell phones, those two technologies were as transformative as everyone thought.

- And by the way, we have a chart overlaying them because you brought this up. So this is Nvidia in 2023 versus Qualcomm and Cisco in 1999. Qualcomm was up something like 600% that year or something. Cisco was a lot less. But nonetheless, it still saw a big increase.

STEVE SOSNICK: And these were transformative technologies and these companies are still here today. But the market got way ahead of itself.

- And then they-- stocks plunged in the next following couple years.

STEVE SOSNICK: Exactly. So I'm not coming on TV and saying Nvidia is going to plunge, you know, similar to that tomorrow. But markets get ahead of themselves. Markets get enthusiastic, and there are other headwinds in terms of valuation that we have to consider. And the question is, will this deliver, and will this deliver to bottom lines, not just be a great technology?