6
NVIDIA Corporation (NVDA)
- Equity
- US
- Technology
RISK
RETURN
Key risk factors
Low default risk
Good trading liquidity
Sufficiently resilient to price shocks
Key return factors
Excellent growth
Very strong margins and returns
Favourable price performance
Company profileNVIDIA Corporation provides graphics, and compute and networking solutions in the United States, Taiwan, China, and internationally. The company's Graphics segment offers GeForce GPUs for gaming and PCs, the GeForce NOW game streaming service and related infrastructure, and solutions for gaming platforms; Quadro/NVIDIA RTX GPUs for enterprise workstation graphics; vGPU software for cloud-based visual and virtual computing; automotive platforms for infotainment systems; and Omniverse software for building 3D designs and virtual worlds. Its Compute & Networking segment provides Data Center platforms and systems for AI, HPC, and accelerated computing; Mellanox networking and interconnect solutions; automotive AI Cockpit, autonomous driving development agreements, and autonomous vehicle solutions; cryptocurrency mining processors; Jetson for robotics and other embedded platforms; and NVIDIA AI Enterprise and other software. The company's products are used in gaming, professional visualization, datacenter, and automotive markets. NVIDIA Corporation sells its products to original equipment manufacturers, original device manufacturers, system builders, add-in board manufacturers, retailers/distributors, independent software vendors, Internet and cloud service providers, automotive manufacturers and tier-1 automotive suppliers, mapping companies, start-ups, and other ecosystem participants. It has a strategic collaboration with Kroger Co. NVIDIA Corporation was incorporated in 1993 and is headquartered in Santa Clara, California.
Valuation: Greatly overvalued
Multiple
TTM
NTM
P/E
78.70
100.80
PEG
0.10
-
P/B
54.50
23.60
P/S
39.00
43.60
P/FCF
87.80
13.70
EV/EBITDA
69.00
284.00
From both historical and forecast perspectives, the stock is considerably overpriced compared to similar stocks. Specifically, the stock is expensive' on P/E, overvalued on EV/EBITDA, and reasonably priced on P/FCF.
Performance: Favourable
The stock's performance has been mixed in the past six months, with growth following a decline. There is no clear price trend compared to its global peers from the same sector and industry (as shown above). The stock has outperformed this peer group by 90ppts over past six months and grown 11ppts faster in the past month. This is largely true for peers from the same country and sector. With respect to the stock's valuation against its peers, its overall price performance is positive. Usually, this means that a fairly valued or slightly undervalued stock has become more 'expensive', indicating that the market, in general, may have gained short-term confidence in the stock.
Analyst view: Somewhat favourable
The average target price is 947 and suggests 0% downside potential. Usually, this means a SELL recommendation among investment firms, or a recommendation to decrease one's position in this instrument in the next 12 months. The most optimistic analyst has a target price of 2762.1. This translates into 191% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 478.4. This is equivalent to 50% downside potential in the worst case.
Profitability: Very strong
RoE
NVIDIA Corporation reported a return on equity (RoE) of 71.0% in the last 12 months, up from 17.9% in FY22. The market consensus projects an RoE of 75.5% in FY24, again ahead of its peers.
RoA
Another important profitability metric, return on assets (RoA), amounted to 59.7% in the last 12 months, an increase from 10.2% in FY22. The market analysts predict that RoA will be 48.0% in FY24, again stronger than its peers.
RoCE
In the last 12 months, the return on capital employed (RoCE) grew to 72.8%, above the peers. The consensus estimate for FY24 for RoCE is 64.6%, again ahead of the peers.
Net margin
EBITDA margin
Historically, NVDA has reported very strong net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 53.4%, a growth from 16.2% in FY22. The company has reported very strong EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 61.6% in the last 12 months, up from 27.2% in FY22.
RoIC / WACC = 4.5(excellent value creation)
The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 4.5 in the past several years. This ratio implies a excellent shareholder value creation. Growth: Excellent
Revenue
EBITDA
EPS
Free cash flow
NVDA reported revenue of USD 79 774mn in the last 12 months, up 31% from FY23. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS grew 43% from FY23 to USD 17.27. Market expects EPS to reach USD 11.27 in FY24.Revenue has been growing rapidly in the past several years (strongly positive), while EBITDA has grown very rapidly in recent years (positive). This all contributed to very fast EPS growth (strongly positive). Free cash flow naturally followed the growing EBITDA trend. We emphasize the highly volatile dynamics of all key metrics. This is an extremely negative factor.
Dividends: Reasonable
Dividend paid
Dividend yield
The company has a track record of regular dividend payments. It has paid dividends in each of the past ten years. Dividend per share (DPS) has grown yearly, but the dynamics are somewhat mixed. In the past 12 months, the dividend yield has barely been above zero and was substantially below that of its peers. On average, the company pays dividends quarterly, which may appeal to investors valuing a regular income stream.
Default risk: Low
The risk of default is low. We note resilient historical revenue growth, robust profitability, solid return on capital, strong debt servicing capacity, adequate interest coverage, solid cash flow generation, and an favourable capital structure, among the positive credit factors. Among the negative credit factors and we point to excessive margin volatility, and poor working capital management.
Volatility: Average
In normal market circumstances, NVDA is moderately volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will move slightly wider than the index. The stock's losses on its worst days (less than 1-5% of the time) will range from moderate to notable. We would also like to highlight the notable intraday volatility of the instrument.
Stress-test: Modest
In highly turbulent market conditions, NVDA is as volatile as an index. In other words, the stock will move with the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be limited.
Selling difficulty: Low
NVDA boasts high trading liquidity. The average private investor can sell his common position in the stock immediately. Liquidity is usually very stable and remains favourable on the days with the lowest activity. However, please consider that under highly turbulent market conditions, the trading volume tends to decrease significantly.
Country risk: Very low
The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.
Other risks: Negligible
No other major risks have been identified.