As part of a new series, each week we typically conduct a DCF on one of the companies in our screens. This week we thought we’d take a look at one of the stocks that is not currently in our screens, NVIDIA Corp (NVDA).
Profile
Nvidia is a leading developer of graphics processing units. Traditionally, GPUs were used to enhance the experience on computing platforms, most notably in gaming applications on PCs. GPU use cases have since emerged as important semiconductors used in artificial intelligence. Nvidia not only offers AI GPUs, but also a software platform, Cuda, used for AI model development and training. Nvidia is also expanding its data center networking solutions, helping to tie GPUs together to handle complex workloads.
Recent Performance
Over the past twelve months the share price is up 293.10%.
Inputs
- Discount Rate: 12%
- Terminal Growth Rate: 2%
- WACC: 12%
Forecasted Free Cash Flows (FCFs)
| Year | FCF (billions) | PV(billions) |
| 2025 | 20.75 | 18.53 |
| 2026 | 22.75 | 18.14 |
| 2027 | 24.85 | 17.69 |
| 2028 | 27.17 | 17.27 |
| 2029 | 29.71 | 16.86 |
Terminal Value
Terminal Value = FCF * (1 + g) / (r – g) = 303.04 billion
Present Value of Terminal Value
PV of Terminal Value = Terminal Value / (1 + WACC)^5 = 171.95 billion
Present Value of Free Cash Flows
Present Value of FCFs = ∑ (FCF / (1 + r)^n) = 88.48 billion
Enterprise Value
Enterprise Value = Present Value of FCFs + Present Value of Terminal Value = 260.43 billion
Net Debt
Net Debt = Total Debt – Total Cash = 2.42 billion
Equity Value
Equity Value = Enterprise Value – Net Debt = 258.01 billion
Per-Share DCF Value
Per-Share DCF Value = Enterprise Value / Number of Shares Outstanding = $104.71
Conclusion
| DCF Value | Current Price | Margin of Safety |
|---|---|---|
| $104.71 | $925.99 | -784.32%% |
Based on the DCF valuation, the stock is overvalued. The DCF value of $104.71 per share is lower than the current market price of $925.99. The Margin of Safety is -784.32%.
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4 Comments on “NVIDIA Corp (NVDA) DCF Valuation: Is The Stock Undervalued?”
I was trying to reconstruct this calculation above but ran into some issues. Could you clarify a few questions for me?
1) What number of shares outstanding was used? From their 2024-02-21 earnings announcement we have basic at 2,466,000,000 or diluted at 2,490,000,000 or was it a different number?
2) It is stated that Per-Share DCF Value = Enterprise Value / Number of Shares Outstanding, but if Enterprise Value is used, why go through the trouble of calculating/displaying Equity Value? Or is this just a typo and it should say Equity Value in the numerator instead?
3) I’m assuming that someone is estimating the 2024 FCF in a detailed way or is perhaps an estimate provided by the company. However, it is unclear as to how 2025 through 2029 is calculated. There is an implied growth factor that moves between 9.2% and 9.6%, but I cannot seem to recreate it from the factors provided. Is this 9-ish growth factor over the first 5 years company specific or is it generic? Given that it varies even slightly from year to year, could you shed a little light on how those first five FCFs are at?
1) Total Number of Shares – I used 2.464B
2) Should read Equity Value / Number of Shares Outstanding
3) The FCF calculations are purely subjective and calculated automatically by my spreadsheet using a number of inputs
Thank you for the clarifications! I very much enjoy these DCF valuations.
Appreciate it Andrew. Thanks.