Nvidia’s True Value Unveiled Nvidia’s True Value Unveiled

Actionable Trade Ideas

always free

Chipmaker NVIDIA

The Nvidia Investment Opportunity

Nvidia Corporation’s (NASDAQ:NVDA) meteoric rise in 2023 has fueled misconceptions about its valuation. Contrary to popular belief, considering the company’s exceptional quality, formidable barriers to entry, and competitive advantages, it is poised for substantial earnings growth this year. Therefore, the notion that Nvidia is overvalued is unfounded. It is imperative to dispel these misconceptions and emphasize that Nvidia holds an alluring long-term value.

The First Misconception About Nvidia – The Alleged Overvaluation

At certain points in 2022, Nvidia traded at lofty multiples, yet these were warranted due to its robust earnings growth rates. As the stock surged, its forward P/E in the thirties and forward EV/EBITDA also in the thirties indicate that Nvidia is not overvalued in respect to its growth prospects and valuation.

The perception of Nvidia’s overvaluation due to its soaring stock price is flawed. The company’s remarkable competitive advantage and strong metrics underpin this surge. While some argue that Nvidia belongs to a cyclical industry, and its peak has been reached, evidence suggests otherwise.

Several companies, including Dell (DELL), Lenovo (OTCPK:LNVGY), and Hewlett Packard Enterprise Company (HPE), are still awaiting their H100 shipments, with wait times ranging from 36 to 52 weeks. This underscores the sustained demand for Nvidia’s products, preempting any significant earnings decline in the coming years.

Besides, Nvidia’s management has consistently demonstrated a keen aptitude for anticipating and aligning with future trends, such as the blockchain/crypto hype, LLM/generative AI hype, and positioning for full self-driving cars, fraud detection, and the Metaverse. These prospects hold the promise of substantial future revenue growth. Nvidia’s involvement in robotics with NVIDIA Isaac, in collaboration with Foxconn (OTCPK:FXCOF), presents another exciting opportunity.

A reverse discounted cash flow (“DCF”) analysis, assuming a Diluted EPS TTM of $7.59, a 10% discount rate, and a terminal multiple of 35x, reveals that the stock’s current price implies an EPS growth rate of 19% over the next 10 years. This contrasts with Nvidia’s 3Y CAGR: 70.49%, 5Y CAGR: 32.33%, and 10Y CAGR: 44.34%, all well above the implied growth rate, suggesting that the stock may be undervalued.

The Second Misconception – It Is Just Hype, Nvidia Just Got Lucky And The Products Are Not That Awesome

Intel’s CEO Patrick Gelsinger’s claim that Nvidia “got extraordinarily lucky” due to the discontinuation of Intel’s Larrabee project is emblematic of Nvidia’s foresight and colossal competitive advantage, attesting to the quality of its management.

Within the GPU market, Nvidia and AMD reign supreme, with Nvidia’s inclination to lock customers into its ecosystem and innovations such as Raytracing, Upscaling DLSS, and G-Sync allowing it to dominate benchmarks and justify premium pricing. Nvidia’s supremacy in CUDA underscores its significant competitive advantage in the software domain. However, this moat is susceptible to possible threats.

In terms of maximum performance, the GeForce RTX 4090 currently stands unrivaled, with AMD trailing in second place, albeit by a significant margin. While AMD excels in the price/performance category, Intel’s presence in this market with the ARC A770 remains distant.

Anticipated developments, such as the RTX 5090’s potential switch to MCM design, foreshadow substantial leaps in performance, and Nvidia’s diversified portfolio beyond GPUs portrays its commitment to solving complex problems efficiently and expediently.

The Third Misconception – China

Speculation surrounding a decrease in sales in China due to geopolitical tensions is quelled by Nvidia’s adeptness in adjusting its product offerings, as evidenced by AMD’s release of the RX7900 GRE – Golden Rabbit Edition – with 16GB instead of 20GB of memory.

For instance, the GeForce RTX 4090D

Swing Trading Ideas and Market Commentary

Need some new swing ideas? Get free weekly swing ideas and market commentary from Jonathan Bernstein here: Swing Trading.

Explore More

Weekly In-Depth Market Analysis and Actionable Trade Ideas

Get institutional-level analysis and trade ideas to take your trading to the next level, sign up for free and become apart of the community.