That risk is weighing on investors’ minds as Nvidia continues to see explosive growth. Is the stock still a buy?

In recent years, Nvidia (NASDAQ: NVDA) was one of the hottest stocks due to its astronomical growth. However, shares fell after the chipmaker announced its fiscal second-quarter earnings last week, despite incredible growth that beat analysts’ expectations. The market was not impressed.

Let’s take a closer look at the company’s latest quarterly results and the one risk that seems to be weighing on investors’ minds.

Outstanding revenue growth continues

For its fiscal second quarter, Nvidia posted a 122% year-over-year sales increase to $30 billion. Adjusted earnings per share (EPS) were $0.68, up 152%. Now, of course, that was a slowdown from the 262% revenue growth and 461% adjusted EPS growth it saw in the first quarter, but still incredible growth.

Its data center business led again, with revenue up 154% to $26.2 billion. The company attributed the growth to its Hopper computing platform, the graphics processing unit (GPU), and in the 2015 quarter it began ramping up its newest H200 Hopper chip.

Gross margins fell sequentially as Nvidia ramped up its new Blackwell chips, but still remained solid at 75.1 percent. This was down from 78.4% in Q1.

Nvidia is also generating an enormous amount of cash, with operating cash flow of $14.5 billion this quarter. Free cash flow was $13.5 billion.

It ended the quarter with net cash and marketable securities of $26.3 billion. It also announced a new $50 billion share buyback program.

Looking ahead, the company reported third-quarter revenue of $32.5 billion, driven by Hopper growth and the delivery of samples of its new Blackwell architecture. She called demand for Blackwell “incredible” and said the transition to its next-generation architecture will be smooth, with demand for both Hopper and Blackwell chips remaining strong.

Nvidia noted that it had to make a change at Blackwell to improve production yield, but expects production to pick up in the fourth quarter. No functional changes were said to be necessary. Last quarter, it indicated that production would increase in Q3. It now expects to recognize several billion dollars in Blackwell revenue in Q4. This is good news and allays fears that there could have been a longer delay.

He predicted that the data center business will continue to grow strongly in the coming year and beyond. He noted that the computing power for next-generation large language models (LLMs) would require 10 to even 40 times the computing power of the previous generation, and that the need for more and more computing power would persist .

The story continues

Is now the time to buy the stock?

Despite its spectacular growth, robust gross margins and opportunities ahead, Nvidia trades at a relatively modest valuation, with a forward price-to-earnings (P/E) ratio of just 30 times analysts’ estimates for next year.

Given the need for ever-increasing computing power to train more complex AI models, and the spending big tech companies are making to advance AI, Nvidia still appears to have a long growth path ahead of it. Combine that with a very reasonable valuation, and the stock looks like a buy.

The one big risk facing the stock, and the question on many investors’ minds, is whether all the spending on AI will result in a payoff for the companies making the spending. Now, companies with cloud computing segments like Microsoft, Alphabetand Amazon they see some benefits, and companies like it Meta platforms and Apple they are also investing heavily in AI.

However, these benefits will also need to accrue to software companies developing AI applications and their customers. Right now, a lot of money is being spent on AI infrastructure to Nvidia’s benefit, but there’s still an ongoing debate about whether other companies will see these investments pay off. If they don’t, then spending on AI infrastructure could eventually slow significantly.

So while Nvidia continues to look like a buy, the only thing investors should really be monitoring is whether the software company’s growth can start to pick up thanks to artificial intelligence. If these companies don’t start to see growth pick up in the next year or so, this could be the proverbial canary in the coal mine in terms of Nvidia’s valuation.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Suzanne Frey, chief executive at Alphabet, is a member of the Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a board member of The Motley Fool. Geoffrey Seiler has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft and Nvidia. The Motley Fool recommends the following options: long $395 January 2026 Microsoft calls and short $405 January 2026 Microsoft calls. The Motley Fool has a disclosure policy.

That risk is weighing on investors’ minds as Nvidia continues to see explosive growth. Is the stock still a buy? was originally published by The Motley Fool