Nvidia Is Set To Turn Into A Cash Machine

Seeking Alpha2021-10-12

Summary Nvidia’s main businesses experience massive momentum as graphics cards sales surge and demand for data centers strengthens. Strong GPU pricing served to improve Nvidia’s margins in the first ...

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精彩评论

Blading23
2021-10-13
Blading23
Good
- Blading23:
  good
SPOT_ON
2021-10-13
SPOT_ON
Nvidia and starhub cloud gaming collaboration!!$STARHUB LTD(CC3.SI)$👍 👍 👍 👍 👍
cassan
2021-10-13
cassan
Pls like
aiyoh79
2021-10-12
aiyoh79
Wait for the dip
NPC69
2021-10-12
NPC69
Llike
- sh99:
  yll
- NPC69:
  Like
ssky
2021-10-12
ssky
Buy!
- FuHeng:
  Cool

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I believe Nvidia will grow into a massive cash machine over the next five years with an estimated annual free cash flow of $14.0B or more!\nWhy Nvidia is a long term buy\nNvidia just produces incredible growth. The firm generated 68% top line growth in the second-quarter, with revenues touching $6.51B due to soaring demand in the gaming and the data center segments. Gaming revenues surged to a record of $3.06B in the second-quarter, showing a year over year increase of 85%, chiefly because of strengthening sales in a severely undersupplied graphics cards market. Data center revenues also surged to a record, $2.37B in Q2’22, showing a year over year growth rate of 35%. With total revenues up by 68% and higher gross margins (66.7% in Q2’22), Nvidia’s commercial performance is getting better and better...\nSource: Nvidia\nBut I don’t believe Nvidia’s business has peaked yet. I believe Nvidia will continue to grow rapidly because of increasing demand for high performance data centers that can handle incredible amounts of workloads and because Nvidia’s largest business by revenues, gaming, is seeing pricing support from end markets. Graphics cards have been flying off the shelf in 2020 and 2021, in part because cryptocurrency miners compete with gamers for GPUs. The result has been that graphics cards are in a shortage, leading to a significant increase in GPU pricing. AMD(NASDAQ:AMD)and Nvidia, the two largest suppliers of high performance graphics processing units, benefit from this trend the most.\nTop-tier graphics cards like AMD’s Radeon RX 6000 and Nvidia’s GeForce RTX 30 series have seen strong demand/pricing in 2021, and the steep decline in cryptocurrency prices in the second-quarter did not significantly lower demand. GPU prices peaked in May - at the top of the crypto boom - and have fallen since. However, pricing is still strong with the AMD Radeon RX series selling for 1.64x suggested retail price at the end of August. Nvidia’s GeForce 30 series sold for 1.59x MSRP in August, indicating consistently high demand for GPUs.\nSource: FPS Reviews\nBecause of excellent commercial performance in its main businesses,accelerating momentum in niche businesses and strength in GPU pricing, Nvidia is looking at a dramatic improvement in free cash flow over the next five years... supplying yet another reason to buy the shares!\nNvidia is projecting revenues of $6.8B +/- 2 percent for the third-quarter. Including Q3’22 revenue projections, Nvidia should post revenues of around $19.0B for the first nine months of FY 2022. Adding $7.0B in revenues on top of that for the fourth-quarter, and Nvidia is looking at revenues of around $26.0B for FY 2022.\nThe market projects revenues of $25.8B this year and $29.0B revenues next year (the assumption is for just 13% year over year growth in FY 2023). I believe revenues will be above $30.0B in FY 2023 due to strong business momentum and favorable GPU pricing. Nvidia’s revenues are projected to grow at an annual rate of 23% until FY 2026 (base year: FY 2021).\nSource: Seeking Alpha Estimates\nLooking at Nvidia’s revenue to cash conversion, consistently high free cash flow margins can be found. The semiconductor firm generated annual free cash flow margins ranging between 28% and 39% from FY 2018 to FY 2021 with an average annual margin of 31%. I believe a free cash flow margin around 30% can be sustained going forward, especially if pricing in the graphics cards market stays strong. Because cryptocurrency prices started to recover in the third-quarter, GPUs could even see accelerating demand in the future. Rising digital currency prices benefit Nvidia in two ways: They boost the cryptocurrency mining business/CMP which sells dedicated processors, and higher demand for GPUs improves end market pricing, meaning Nvidia can sell the same graphics card for a higher price. Nvidia’s free cash flow margin in the first six months of FY 2022 was above 33%, due chiefly to strength in GPU demand and pricing.\nSource: Author\nTurning back to revenue projections.\nThe FY 2023 market expectation is for Nvidia to have revenues of $29.0B. Assuming a 30% free cash flow margin, Nvidia is looking at $8.7B in free cash flow next year... which is a 100% improvement over the firm's FY 2020 level of free cash flow. I believe the FY 2023 revenue estimate underestimates Nvidia’s growth potential next year as I see persistent strength in gaming and data centers, and a higher than 13% annual revenue growth rate. However, revenue estimates for Nvidia, for this year and next year, are rising...\nData by YCharts\nIf we were also to assume that Nvidia can generate 30% free cash flow margins in the future, Nvidia’s annual free cash flow is set to surpass $14B by FY 2026. In CAGR terms, this means that Nvidia will grow free cash flow at a 25% annual rate over the next five years. Nvidia may grow free cash flow at a faster rate if revenues also grow faster. I believe this will happen because the RTX upgrade cycle will lead to a higher volume of higher-priced GPUs being sold in the future, which is set to boost FCF margins.\nAs Nvidia releases more top-tier, higher margin graphics cards and gamers upgrade their equipment, Nvidia's free cash flow margins could even expand beyond 30%. Assuming a, say, 35% revenue to free cash flow conversion, Nvidia could generate up to $16.4B in annual free cash flow by FY 2026… which would imply a FCF CAGR of not 25%, but 29%.\nFor that reason, I believe Nvidia’s free cash flow potential is materially undervalued. Nvidia is set to generate a massive amount of cash flow in the next five years. Based off of FY 2023 revenue estimates, Nvidia is not cheap (P-S ratio: 17.9), but the potential for sales and free cash flow growth justifies the price.\nData by YCharts\nRisks with Nvidia\nNvidia has a couple of commercial risks that need to be considered. The industry environment is favorable for Nvidia at the moment which explains strong revenue growth projections, but weaker pricing in graphics cards potentially indicates growing risks to Nvidia’s top line. Lower gross margins will also likely be seen as the canary in the coal mine, indicating that slowing revenue growth is on the horizon. Longer term, Nvidia has to keep its technological edge to defend its tech leadership in GPUs, data centers and AI. Failing to do so would give its rivals, AMD and Intel(NASDAQ:INTC), an opportunity to grow their market share at the expense of Nvidia.\nFinal thoughts\nNvidia, despite a high P-S ratio, may still be undervalued considering the massive ramp in free cash flow that can be expected in the next five years. Sales projections for FY 2023 imply a drop off in growth rates, which I just don’t see given the accelerating strength in Nvidia’s main and niche businesses. Nvidia is in a buy-the-dip situation and the risk profile remains heavily skewed to the upside!","kind":"news","is_publish_news":true,"is_publish_highlight":true,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":822946179,"gmtCreate":1634087504548,"gmtModify":1634087963888,"author":{"id":"3565700003213382","authorId":"3565700003213382","name":"Blading23","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":4,"crmLevelSwitch":0,"idStr":"3565700003213382","authorIdStr":"3565700003213382"},"htmlText":"Good&nbsp;","listText":"Good&nbsp;","text":"Good","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":1,"repostSize":0,"link":"https://laohu8.com/post/822946179","repostId":1174197178,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":6180093,"gmtCreate":1634087520283,"gmtModify":1634637220080,"authorId":3565700003213382,"author":{"id":3565700003213382,"idStr":"3565700003213382","authorId":3565700003213382,"name":"Blading23","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":4,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":822946179,"type":1,"supId":0,"prevId":0,"content":"good","text":"good","html":"good"}],"langContent":"CN"},{"id":822011057,"gmtCreate":1634078444705,"gmtModify":1634078452385,"author":{"id":"3582922989777578","authorId":"3582922989777578","name":"SPOT_ON","avatar":"https://static.tigerbbs.com/080f029371339d9db26930961de6adb1","vip":1,"crmLevel":4,"crmLevelSwitch":0,"idStr":"3582922989777578","authorIdStr":"3582922989777578"},"htmlText":"Nvidia and starhub cloud gaming collaboration!!<a href=\"https://laohu8.com/S/CC3.SI\">$STARHUB LTD(CC3.SI)$</a>👍 👍 👍 👍 👍&nbsp;","listText":"Nvidia and starhub cloud gaming collaboration!!<a href=\"https://laohu8.com/S/CC3.SI\">$STARHUB LTD(CC3.SI)$</a>👍 👍 👍 👍 👍&nbsp;","text":"Nvidia and starhub cloud gaming collaboration!!$STARHUB LTD(CC3.SI)$👍 👍 👍 👍 👍","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":5,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/822011057","repostId":1174197178,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"CN"},{"id":822019436,"gmtCreate":1634078396227,"gmtModify":1634078396627,"author":{"id":"3562891229203554","authorId":"3562891229203554","name":"cassan","avatar":"https://static.tigerbbs.com/2f12a58ed338611b5e581e7f21ac579b","vip":1,"crmLevel":5,"crmLevelSwitch":0,"idStr":"3562891229203554","authorIdStr":"3562891229203554"},"htmlText":"Pls like","listText":"Pls like","text":"Pls like","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":3,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/822019436","repostId":1174197178,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"CN"},{"id":826782128,"gmtCreate":1634054357030,"gmtModify":1634089009648,"author":{"id":"4095222842422150","authorId":"4095222842422150","name":"aiyoh79","avatar":"https://static.tigerbbs.com/8b4d6ba5b13f7e724af3472b596ca6ac","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"4095222842422150","authorIdStr":"4095222842422150"},"htmlText":"Wait for the dip","listText":"Wait for the dip","text":"Wait for the 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