Nvidia Corporation: Our Calculation Of Intrinsic Value
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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 not in our screens, Nvidia Corporation (NVDA).
Profile
Nvidia Corporation is a global leader in graphics processing units (GPUs), artificial intelligence (AI) infrastructure, and data center solutions. It operates in two primary segments: Graphics (45% of revenue) and Compute & Networking (55%), the latter of which powers the company’s rapid growth in AI, cloud computing, and autonomous vehicles. Nvidia’s flagship products include the GeForce GPU lineup, the Nvidia RTX platform, and its AI-centric Nvidia H100 and Grace Hopper chips. The company has a dominant market share in gaming GPUs and has emerged as the leading provider of AI accelerator chips used by hyperscalers like Amazon, Microsoft, and Google.
Inputs
Discount Rate: 12%
Terminal Growth Rate: 4%
WACC: 12%
Forecasted Free Cash Flows (FCFs) in billions
| Year | FCF ($B) | Present Value ($B) |
|---|---|---|
| 2025 | 60.85 | 54.34 |
| 2026 | 66.94 | 53.40 |
| 2027 | 72.29 | 51.54 |
| 2028 | 76.63 | 48.73 |
| 2029 | 80.46 | 45.59 |
Total Present Value of FCFs = 253.60 billion
Terminal Value Calculation
Terminal Value = (FCF_2029 × (1 + g)) / (r – g)
= (80.46 × 1.04) / (0.12 – 0.04)
= 83.68 / 0.08
= 1,046.00 billion
Present Value of Terminal Value
PV of Terminal Value = Terminal Value / (1 + WACC)^5
= 1,046.00 / (1.12)^5
= 1,046.00 / 1.7623
= 593.58 billion
Enterprise Value Calculation
Enterprise Value = PV of FCFs + PV of Terminal Value
= 253.60 + 593.58
= 847.18 billion
Net Debt Calculation
Net Debt = Total Debt – Total Cash
= 10.27 – 43.21
= -32.94 billion (Net Cash Position)
Equity Value Calculation
Equity Value = Enterprise Value + Net Cash
= 847.18 + 32.94
= 880.12 billion
Per-Share DCF Value
Per-Share DCF Value = Equity Value / Shares Outstanding
= 880.12 / 24.4
= $36.07
Conclusion
| DCF Value | Current Price | Margin of Safety |
|---|---|---|
| $36.07 | $110.42 | -67.34% |
Based on the DCF valuation, Nvidia appears overvalued. The estimated intrinsic value of $36.07 per share is significantly lower than the current market price of $110.42, resulting in a -67.34% Margin of Safety.
This suggests that while Nvidia is a top-tier AI infrastructure provider, its current valuation still implies extremely optimistic assumptions well beyond our fundamental cash flow forecasts.
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