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$NVDA Nvidia Stock Analysis: Is it a Good Investment Opportunity?
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/97ef4a1e-a94c-4855-b5b6-d4bc1e0c2194/nvda_log.png?t=1683287205)
Business Model
NVIDIA Corporation operates in two segments:
Graphics
Compute & Networking
The Graphics segment includes sales of graphics processing units (GPUs) and other related products, while the Compute & Networking segment includes products related to data centers, artificial intelligence, and high-performance computing.
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/e15b938f-c819-483d-84c3-27ef316e7dda/revenue_by_segment.png)
NVIDIA specialize in markets where their computing platforms can provide tremendous acceleration for applications.
Primary markets that NVIDIA serves:
Data Center
Gaming
Professional Visualization
Automotive
Track Record
NVIDIA massively outperformed the market in the last 5 and 10 years.
5 year total return of $NVDA vs $QQQ:
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/8de6127b-ee48-40d4-a4fe-49c6511b33c5/5y_total_return.png)
$NVDA = 37.70% annualized return
10 year total return of $NVDA vs $QQQ:
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/6ec65fbb-374b-44e9-b4a0-73390745ee37/10_yr_total_return.png)
$NVDA = 56.31% annualized return
Stock price experienced massive drawdowns for the last 10 years:
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/d26fd838-4207-4181-acd5-976356b18d0e/drawdowns.png)
$QQQ vs $NVDA drawdown comparison
Grew Revenue massively:
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/dc81bcc6-b62c-41a8-bcce-3fb573da33f3/nvda_revenue_growth.png)
Grew EPS:
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/6794eb03-41ee-4532-a26c-95ce1c207772/nvda_normalized_eps.png)
Grew Free Cash Flow and Free Cash Flow Per Share massively:
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/662de62e-f355-48e1-95b1-e1f96e124b72/nvda_fcf.png)
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/eeab87d4-d9aa-4e56-b2f1-5ae87c3e0cc7/nvda_fcf_per_share.png)
Good track record of beating EPS estimates:
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/2a55eb28-6e16-40b3-8508-2af6cb03e55f/nvda_eps_actual_vs_estimate.png)
Balance Sheet
Total assets is 2x of total liabilities:
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/9bb04235-3aca-488d-b077-837c5903ae0c/nvda_total_assets_vs_liabilities.png)
It indicates that the company is in a strong financial position and is financially stable.
A lot of Total Current Assets relative to Total Current Liabilities:
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/74a17f48-2d74-4260-852b-d6e1ec821e83/nvda_total_current_assets_vs_liabilities.png)
Means the company has no liquidity issues in the short-term.
A good amount of Total Cash and Short Term Investments relative to Total Debt:
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/29bdb844-c6a5-47cf-b983-55ad6e4eed48/nvda_total_cash_and_short-term_investments_vs_total_debt.png)
Majority of the Total Debt is Long Term Debt (payable beyond 12 months).
In short, the balance sheet of NVIDIA is healthy.
Competitive Advantages
1. Strong brand recognition: NVIDIA is a well-known brand in the gaming industry, and its GPUs are highly regarded by gamers and professionals alike.
2. Technological expertise: NVIDIA has a strong track record of innovation, with a focus on developing cutting-edge graphics technologies that deliver superior performance.
3. Diversified revenue streams: NVIDIA has a diversified revenue base, with its products and services spanning across gaming, data center, professional visualization, and automotive markets.
4. Strong financial position: NVIDIA has a strong balance sheet, with significant cash reserves and low debt levels, which provides the company with the financial flexibility to pursue growth opportunities.
Valuation
Price to Earnings (P/E) is at the highest using the data for the last 10 years:
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/7dd102c6-d548-4965-8fcd-d02cf5b36ba3/nvda_LTM_PE.png)
For context, here’s the P/E (LTM) of NASDAQ 100:
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/3d68ecf1-f86a-4a91-a9d3-f73163440ebe/nasdaq_100_pe_LTM.png)
And here’s the P/E of $NVDA and some of its competitors ($AMD $INTC $AAPL):
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/385bdd84-93fe-4bc3-8a59-98e9856a4907/nvda_vs_competitors_pe_ratio.png)
Price to Free Cash Flow (P/FCF) is at the highest using the data for the last 10 years:
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/c111a3aa-823d-4e82-86a1-59dbf9bdcc97/nvda_p_fcf.png)
Price to Free Cash Flow (P/FCF) of $NVDA compared to some of its competitors ($AMD $INTC $AAPL):
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/32acdcc0-75da-4a82-92c8-cb3ceb9b1ddd/nvda_vs_competitors_p_fcf.png)
In summary, the current valuation of $NVDA is very high compared to its 10 year historical valuation and compared to its competitors based on P/E and P/FCF.
Forecast
Analysts are expecting the company to continue growing its revenue and EPS:
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/906ff0f8-f1d8-4860-bfaf-e62fac1b3a12/nvda_rev_and_eps_forecast.png)
Reverse DCF
Using 10% Discount Rate and 2% Terminal Stage Growth Rate:
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/4e8e71aa-7fb0-4b2d-8be4-c1d1d52bbda5/NVDA_reverse_DCF_eps_10_DR.png)
On the current share price, the market is expecting a 43.24% EPS growth rate.
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/19e8a0ed-a098-4086-937f-29d66f940e73/NVDA_reverse_DCF_fcf_10_DR.png)
On the current share price, the market is expecting a 44.40% Free Cash Flow growth rate.
Other Infos
Worldwide semiconductor sales is forecasted to keep on growing:
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/9513d192-b677-4d30-acf9-0b93fb1c7cf4/semis_growth_forecast.png)
Nvidia is poised to benefit from major growth trends in the technology industry. Forecasts indicate that the global GPU market will see a compound annual growth rate (CAGR) of 21.2% until 2029:
Similarly, the global deep learning market is projected to experience a CAGR of 33.5% through 2030:
And the global artificial intelligence market is predicted to have a CAGR of 38.1% until 2030:
These trends suggest a bright future for Nvidia as it continues to innovate and expand its offerings in these key areas.
Conclusion
Nvidia is a fantastic business with plenty of growth potential. My concern is the valuation since it’s priced at a very high P/E and P/FCF multiples. The expected EPS and FCF growth rate based on the reverse DCF calculation is very difficult to be met.
Buying shares of $NVDA at the current valuation is very risky. There's a significant possibility of multiple contraction, so there’s a huge downside risk. Having said that, the stock may continue to climb higher if the market continues to overlook the valuation (which is a big "if").
If the goal is to invest in Nvidia with a long-term investment time horizon, with a high probability to make money and with a margin of safety (minimal downside risk), it’s not an ideal option because it is too expensive.
When buying $NVDA today, it's crucial to time the market (be able to exit before the bubble pops) and practice risk management, such as limiting the position size in a portfolio.
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