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2021-12-23

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Nvidia's Bright Growth Outlook

Summary The top end of our fair value estimate range for Nvidia Corporation, derived through our di

Nvidia's Bright Growth Outlook

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{"i18n":{"language":"zh_CN"},"data":{"magic":2,"id":691733125,"tweetId":"691733125","gmtCreate":1640240252394,"gmtModify":1640240252454,"author":{"id":3578099023612699,"idStr":"3578099023612699","authorId":3578099023612699,"authorIdStr":"3578099023612699","name":"xiaominggg","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"userType":1,"introduction":"","boolIsFan":false,"boolIsHead":false,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[],"fanSize":0,"starInvestorFlag":false},"themes":[],"images":[],"coverImages":[],"extraTitle":"","html":"<html><head></head><body>I also think so</body></html>","htmlText":"<html><head></head><body>I also think so</body></html>","text":"I also think so","highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"favoriteSize":0,"link":"https://laohu8.com/post/691733125","repostId":1184640882,"repostType":4,"repost":{"id":"1184640882","kind":"news","pubTimestamp":1640238232,"share":"https://www.laohu8.com/m/news/1184640882?lang=&edition=full","pubTime":"2021-12-23 13:43","market":"us","language":"en","title":"Nvidia's Bright Growth Outlook","url":"https://stock-news.laohu8.com/highlight/detail?id=1184640882","media":"Seeking Alpha","summary":"Summary\n\nThe top end of our fair value estimate range for Nvidia Corporation, derived through our di","content":"Summary\n<ul>\n <li>The top end of our fair value estimate range for Nvidia Corporation, derived through our discounted free cash flow analysis process, sits at $311 per share.</li>\n <li>Several powerful secular growth tailwinds including the ongoing proliferation of e-commerce, cloud computing, AI, and autonomous driving operations underpin Nvidia's promising growth outlook.</li>\n <li>Nvidia is a stellar free cash flow generator with a fortress-like balance sheet and balanced capital allocation priorities.</li>\n <li>We think it is growing unlikely that Nvidia's planned purchase of Arm from SoftBank Group Corp will go through due to antitrust and other regulatory concerns seen around the world.</li>\n <li>Nvidia's recent push into the CPU market on top of its dominant position in the GPU market further underpins why the firm's growth outlook appears so promising, in our view.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/d0d88c6fe83f28815faabe05002aaad5\" tg-width=\"1536\" tg-height=\"1024\" width=\"100%\" height=\"auto\">serg3d/iStock Editorial via Getty Images\nAs part of our investment analysis process, we perform a rigorous discounted cash-flow methodology that dives into the cash-flow-derived intrinsic worth of companies. This process is built around forecasting a firm's future free cash flows, discounting those future forecasted free cash flows at the appropriate rate, and then taking its balance sheet considerations (such as its net cash/debt position, and legal/environmental/pension liabilities) into account. In NVIDIA Corporation's (NVDA) case, the top end of our fair value estimate range sits at $311 per share, modestly above where shares of NVDA are trading at as of this writing. Please note that over the coming years, the top end ofNVIDIA's fair value estimate range could grow north of $410 per share, something we will cover in this article.\nInvestment Highlights\nNVIDIA is a computer graphics company. Its business is based on two technologies: the graphics processing units ('GPUs') and the&nbsp;Tegra&nbsp;system-on-a-chip ('SoC') offering. GPUs are the&nbsp;engine&nbsp;of visual computing. Tegra processors incorporate multi-core GPUs and central processing units ('CPUs') together with audio and video capabilities, and are used in smartphones, tablets, and luxury automobiles.NVIDIA was founded in 1993 and is headquartered in Santa Clara, California. Like many of its peers,NVIDIA relies on&nbsp;third-party foundries&nbsp;to produce the semiconductor components (or \"chips\") that it designs.\nGaming and data centers have been key sources of revenue growth forNVIDIA as demand for its core GPU offerings surged higher in the wake of the coronavirus ('COVID-19') pandemic. During the first three quarters of fiscal 2022 (period ended&nbsp;October 31, 2021),NVIDIA's GAAP revenues grew by 65% year-over-year while its GAAP operating income more than doubled during this period. This strong showing was largely made possible through the stellar performance of its 'Gaming' and 'Data Center' business segments.\nLooking ahead, management offered guidance for the fiscal fourth quarter in conjunction withNVIDIA's latest earnings update that indicated its strong financial performance is expected to continue going forward. Its high-end graphics rendering platform,NVIDIA RTX, is setting new standards in gaming technology.\nNVIDIA is also making&nbsp;inroads&nbsp;in the \"omniverse\" space, its preferred way to refer to the digital worlds that the \"metaverse\" aims to create. These are still early days, though we appreciate the effortNVIDIA's management team is making as it concerns identifying growth opportunities with long legs.\nWhile its GPU offerings areNVIDIA's bread-and-butter, the company is working on rolling out a standalone CPU offering, the&nbsp;NVIDIA Grace CPU, which is geared towards data centers. This new offering was announced in April 2021 and is expected to be made available on a commercial basis in 2023. Please note both GPUs and CPUs are used in data centers, personal computers, and for a variety of other computing purposes. Expanding into the CPU market represents a massive growth opportunity forNVIDIA and this move is one of several reasons why we view the company's growth trajectory so favorably.\nThe forecasts for our enterprise cash flow model (which we will cover in this article) assumes double-digit annual revenue growth and meaningful margin expansion over the coming fiscal years. This forecast is underpinned byNVIDIA’s relentless focus on innovation, secular growth tailwinds, and its successes in the realm of gaming, data centers, autonomous driving,and AI. Should the firm stumble for any reason, its intrinsic value would face serious headwinds.\nNVIDIA expects to be a significant player in autonomous driving. Hundreds of companies use its&nbsp;Drive AGX&nbsp;open computing platform, and the list includes many of the top names in next-gen car and truck manufacturing.NVIDIA tabs autonomous vehicles as a $60 billion&nbsp;opportunity&nbsp;by 2035.\nIn April 2020,NVIDIA&nbsp;completed&nbsp;its ~$7 billion acquisition of Mellanox, bolstering its operations that cater to data centers.NVIDIA is in&nbsp;the process&nbsp;of acquiring Arm Limited (designer of semiconductor architecture) from SoftBank Group Corp (OTCPK:SFTBY) and SoftBank's Vision Fund in a transaction priced at ~$40 billion (with a ~$12 billion cash component), though antitrust hurdles&nbsp;remain&nbsp;and it is looking increasingly&nbsp;unlikely&nbsp;that the deal will go forward.\nEconomic Profit Analysis\nThe best measure of a firm's ability to create value for shareholders is expressed by comparing its return on invested capital ['ROIC'] with its weighted average cost of capital ['WACC']. The gap or difference between ROIC and WACC is called the firm's economic profit spread.NVIDIA has historically been a stellar generator of shareholder value and we expect that this will continue being the case going forward.\nNVIDIA's 3-fiscal year&nbsp;historical return&nbsp;on invested capital (without goodwill) is 94.5%, which is above the estimate of its cost of capital of 9.8%. In the upcoming graphic down below, we show the probable path of its forecasted ROIC in the fiscal years ahead based on the estimated volatility of key drivers behind the measure. The solid grey line reflects the most likely outcome (our \"base\" case scenario), in our opinion, and represents the scenario that results in our fair value estimate. The blue dots represent our \"bull\" case scenario and the green dots represent our \"bear\" case scenario.\n<img src=\"https://static.tigerbbs.com/df45d00b608333d9732ab8afeaaba4a2\" tg-width=\"553\" tg-height=\"480\" width=\"100%\" height=\"auto\">Image Shown: NVIDIA is a stellar generator of shareholder value as its forecasted ROIC, excluding goodwill, is expected to vastly exceed its estimated WACC over the coming fiscal years. Historically, NVIDIA's ROIC excluding goodwill has significantly outpaced its estimated WACC, indicating that in the past it has generated substantial shareholder value, but we are most interested in its future. Image Source: Valuentum\n<img src=\"https://static.tigerbbs.com/a76899e4ecec2cb399eb536f039a8d14\" tg-width=\"559\" tg-height=\"736\" width=\"100%\" height=\"auto\">Image Shown: An overview of how we calculated NVIDIA's estimated WACC. Image Source: Valuentum\nCash Flow Analysis\nNVIDIA is a tremendous generator of free cash flow. From fiscal 2019-2021 (NVIDIA's fiscal year ends in late-January), the company generated ~$4.0 billion in annual free cash flow on average. In fiscal 2020 and fiscal 2021, asNVIDIA was building up cash to fund its aforementioned acquisition activities, the firm did not repurchase a meaningful amount of its stock. However, in fiscal 2019,NVIDIA repurchased $1.6 billion of its stock. The firm exited fiscal 2021 with $0.4 billion in run-rate dividend obligations.\nIts stellar free cash flow performance continued into fiscal 2022. During the first three quarters of the current fiscal year,NVIDIA generated $5.4 billion in free cash flow while spending $0.3 billion covering its dividend obligations. The firm continued to hold off on share buybacks during this period. At the end of October 2021,NVIDIA had a net cash position of $8.4 billion with no short-term debt on the books. We are huge fans ofNVIDIA's pristine balance sheet and balanced approached to capital allocation decisions.\n<img src=\"https://static.tigerbbs.com/a33e177ba3b8979c4701cd8c7017c0f6\" tg-width=\"561\" tg-height=\"483\" width=\"100%\" height=\"auto\">Image Shown: NVIDIA has historically been a tremendous generator of free cash flow, and we forecast that will continue being the case going forward. Image Source: Valuentum\nValuation Analysis\nWe thinkNVIDIA is worth $247 per share (under our base case scenario) with a fair value range of $183-$311 per share (the lower rung of our fair value estimate represents our bear case scenario and the upper rung represents our bull case scenario). The near-term operating forecasts we used in our enterprise cash flow models, including revenue and earnings forecasts, do not differ much from consensus estimates or management guidance.\nOur discounted cash flow models reflect a compound annual revenue growth rate of 24.7% during the next five full fiscal years, a pace that is higher than the firm's 3-fiscal year historical compound annual growth rate of 19.7%. Our models reflects a 5-fiscal year projected average operating margin of 49.2%, which is aboveNVIDIA's trailing 3-fiscal year average (in fiscal 2021,NVIDIA's GAAP operating margin stood at 43.6%).\nBeyond Year 5 (five full fiscal years from the end ofNVIDIA's latest fiscal year), we assume free cash flow will grow at an annual rate of 10.9% for the next 15 fiscal years and 3% in perpetuity. ForNVIDIA, we use a 9.8% weighted average cost of capital to discount future free cash flows. The coming graphic down below highlights the key valuation assumptions used in our base case scenario covering&nbsp;NVIDIA.\n<img src=\"https://static.tigerbbs.com/1ec17bc624989924f5e557d74e07b7f2\" tg-width=\"556\" tg-height=\"490\" width=\"100%\" height=\"auto\">Image Shown: An overview of the key valuation assumptions used in our cash flow model covering NVIDIA under our base case scenario. Image Source: Valuentum\n<img src=\"https://static.tigerbbs.com/d48f53155ec22cc97ef62fe0239d5930\" tg-width=\"548\" tg-height=\"505\" width=\"100%\" height=\"auto\">Image Shown: NVIDIA's long growth tail underpins why most of the intrinsic value of its equity comes from its forecasted free cash flows, discounted at the appropriate rate, during the Year 6+ period into perpetuity. Image Source: Valuentum\nPlease note thatNVIDIA could exceed the key valuation assumptions within our base case scenario. For instance, its revenue might grow at a faster pace than our cash flow model is assuming asNVIDIA pushes into the CPU space while powerful secular growth tailwinds underpin demand for its semiconductor offerings. Additionally,NVIDIA's operating margins could expand at a more robust pace than our cash flow models are assuming if the uplift from economies of scale and its immense pricing power outperforms.\nWith this in mind, we like to provide a range of potential outcomes that take into the chance for a firm to outperform or underperform the key valuation assumptions used in our cash flow models. ShouldNVIDIA outperform, the top end of our fair value estimate range sits at $311 per share.\n<img src=\"https://static.tigerbbs.com/8a77a92954fa4327f4f5d246ee8a84a8\" tg-width=\"550\" tg-height=\"331\" width=\"100%\" height=\"auto\">Image Shown: At the top end of our fair value estimate range, NVIDIA has an intrinsic value of $311 per share. Image Source: Valuentum\nFuture Path of Fair Value\nAs time passes, companies generate cash flow and pay out cash to shareholders in the form of dividends. The upcoming graphic down below compares the firm's recent share price with the path ofNVIDIA's expected equity value per share over the next three fiscal years, assuming our long-term projections prove accurate. The range between the resulting downside fair value and upside fair value in Year 3 represents our best estimate of the value of the firm's shares three full fiscal years hence.\nThis range of potential outcomes is also subject to change over time, should our views on the firm's future cash flow potential change. The expected fair value of $327 per share in Year 3 represents our existing fair value per share of $247 increased at an annual rate of the firm's cost of equity less its dividend yield. The upside and downside ranges are derived in the same way, but from the upper and lower bounds of our fair value estimate range. ShouldNVIDIA outperform, its fair value estimate could grow to over $410 by Year 3.\n<img src=\"https://static.tigerbbs.com/7bb37f5bbe479c8ce940639d804694f3\" tg-width=\"551\" tg-height=\"414\" width=\"100%\" height=\"auto\">Image Shown: We forecast that NVIDIA's fair value estimate will grow significantly over the coming fiscal years. Image Source: Valuentum\nConcluding Thoughts\nThoughNVIDIA's planned acquisition of Arm will probably not go through due to growing and sizable antitrust concerns,NVIDIA's growth outlook is still quite bright.NVIDIA has a fortress-like balance sheet, stellar free cash flow generating abilities, and has been growing like a weed in recent fiscal years. Powerful secular growth tailwinds, such as the proliferation of e-commerce, cloud computing, AI, and autonomous driving offerings all underpinNVIDIA's bright long-term growth outlook. Shares of NVDA yield a negligible amount as of this writing as management prefers to invest in the business and build up cash on hand to fund acquisition activities. Virtually all ofNVIDIA's upside comes from its capital appreciation potential.","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Nvidia's Bright Growth Outlook</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nNvidia's Bright Growth Outlook\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-12-23 13:43 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4476513-nvidia-nvda-stock-bright-growth-outlook>Seeking Alpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nThe top end of our fair value estimate range for Nvidia Corporation, derived through our discounted free cash flow analysis process, sits at $311 per share.\nSeveral powerful secular growth ...\n\n<a href=\"https://seekingalpha.com/article/4476513-nvidia-nvda-stock-bright-growth-outlook\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"NVDA":"英伟达"},"source_url":"https://seekingalpha.com/article/4476513-nvidia-nvda-stock-bright-growth-outlook","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1184640882","content_text":"Summary\n\nThe top end of our fair value estimate range for Nvidia Corporation, derived through our discounted free cash flow analysis process, sits at $311 per share.\nSeveral powerful secular growth tailwinds including the ongoing proliferation of e-commerce, cloud computing, AI, and autonomous driving operations underpin Nvidia's promising growth outlook.\nNvidia is a stellar free cash flow generator with a fortress-like balance sheet and balanced capital allocation priorities.\nWe think it is growing unlikely that Nvidia's planned purchase of Arm from SoftBank Group Corp will go through due to antitrust and other regulatory concerns seen around the world.\nNvidia's recent push into the CPU market on top of its dominant position in the GPU market further underpins why the firm's growth outlook appears so promising, in our view.\n\nserg3d/iStock Editorial via Getty Images\nAs part of our investment analysis process, we perform a rigorous discounted cash-flow methodology that dives into the cash-flow-derived intrinsic worth of companies. This process is built around forecasting a firm's future free cash flows, discounting those future forecasted free cash flows at the appropriate rate, and then taking its balance sheet considerations (such as its net cash/debt position, and legal/environmental/pension liabilities) into account. In NVIDIA Corporation's (NVDA) case, the top end of our fair value estimate range sits at $311 per share, modestly above where shares of NVDA are trading at as of this writing. Please note that over the coming years, the top end ofNVIDIA's fair value estimate range could grow north of $410 per share, something we will cover in this article.\nInvestment Highlights\nNVIDIA is a computer graphics company. Its business is based on two technologies: the graphics processing units ('GPUs') and the Tegra system-on-a-chip ('SoC') offering. GPUs are the engine of visual computing. Tegra processors incorporate multi-core GPUs and central processing units ('CPUs') together with audio and video capabilities, and are used in smartphones, tablets, and luxury automobiles.NVIDIA was founded in 1993 and is headquartered in Santa Clara, California. Like many of its peers,NVIDIA relies on third-party foundries to produce the semiconductor components (or \"chips\") that it designs.\nGaming and data centers have been key sources of revenue growth forNVIDIA as demand for its core GPU offerings surged higher in the wake of the coronavirus ('COVID-19') pandemic. During the first three quarters of fiscal 2022 (period ended October 31, 2021),NVIDIA's GAAP revenues grew by 65% year-over-year while its GAAP operating income more than doubled during this period. This strong showing was largely made possible through the stellar performance of its 'Gaming' and 'Data Center' business segments.\nLooking ahead, management offered guidance for the fiscal fourth quarter in conjunction withNVIDIA's latest earnings update that indicated its strong financial performance is expected to continue going forward. Its high-end graphics rendering platform,NVIDIA RTX, is setting new standards in gaming technology.\nNVIDIA is also making inroads in the \"omniverse\" space, its preferred way to refer to the digital worlds that the \"metaverse\" aims to create. These are still early days, though we appreciate the effortNVIDIA's management team is making as it concerns identifying growth opportunities with long legs.\nWhile its GPU offerings areNVIDIA's bread-and-butter, the company is working on rolling out a standalone CPU offering, the NVIDIA Grace CPU, which is geared towards data centers. This new offering was announced in April 2021 and is expected to be made available on a commercial basis in 2023. Please note both GPUs and CPUs are used in data centers, personal computers, and for a variety of other computing purposes. Expanding into the CPU market represents a massive growth opportunity forNVIDIA and this move is one of several reasons why we view the company's growth trajectory so favorably.\nThe forecasts for our enterprise cash flow model (which we will cover in this article) assumes double-digit annual revenue growth and meaningful margin expansion over the coming fiscal years. This forecast is underpinned byNVIDIA’s relentless focus on innovation, secular growth tailwinds, and its successes in the realm of gaming, data centers, autonomous driving,and AI. Should the firm stumble for any reason, its intrinsic value would face serious headwinds.\nNVIDIA expects to be a significant player in autonomous driving. Hundreds of companies use its Drive AGX open computing platform, and the list includes many of the top names in next-gen car and truck manufacturing.NVIDIA tabs autonomous vehicles as a $60 billion opportunity by 2035.\nIn April 2020,NVIDIA completed its ~$7 billion acquisition of Mellanox, bolstering its operations that cater to data centers.NVIDIA is in the process of acquiring Arm Limited (designer of semiconductor architecture) from SoftBank Group Corp (OTCPK:SFTBY) and SoftBank's Vision Fund in a transaction priced at ~$40 billion (with a ~$12 billion cash component), though antitrust hurdles remain and it is looking increasingly unlikely that the deal will go forward.\nEconomic Profit Analysis\nThe best measure of a firm's ability to create value for shareholders is expressed by comparing its return on invested capital ['ROIC'] with its weighted average cost of capital ['WACC']. The gap or difference between ROIC and WACC is called the firm's economic profit spread.NVIDIA has historically been a stellar generator of shareholder value and we expect that this will continue being the case going forward.\nNVIDIA's 3-fiscal year historical return on invested capital (without goodwill) is 94.5%, which is above the estimate of its cost of capital of 9.8%. In the upcoming graphic down below, we show the probable path of its forecasted ROIC in the fiscal years ahead based on the estimated volatility of key drivers behind the measure. The solid grey line reflects the most likely outcome (our \"base\" case scenario), in our opinion, and represents the scenario that results in our fair value estimate. The blue dots represent our \"bull\" case scenario and the green dots represent our \"bear\" case scenario.\nImage Shown: NVIDIA is a stellar generator of shareholder value as its forecasted ROIC, excluding goodwill, is expected to vastly exceed its estimated WACC over the coming fiscal years. Historically, NVIDIA's ROIC excluding goodwill has significantly outpaced its estimated WACC, indicating that in the past it has generated substantial shareholder value, but we are most interested in its future. Image Source: Valuentum\nImage Shown: An overview of how we calculated NVIDIA's estimated WACC. Image Source: Valuentum\nCash Flow Analysis\nNVIDIA is a tremendous generator of free cash flow. From fiscal 2019-2021 (NVIDIA's fiscal year ends in late-January), the company generated ~$4.0 billion in annual free cash flow on average. In fiscal 2020 and fiscal 2021, asNVIDIA was building up cash to fund its aforementioned acquisition activities, the firm did not repurchase a meaningful amount of its stock. However, in fiscal 2019,NVIDIA repurchased $1.6 billion of its stock. The firm exited fiscal 2021 with $0.4 billion in run-rate dividend obligations.\nIts stellar free cash flow performance continued into fiscal 2022. During the first three quarters of the current fiscal year,NVIDIA generated $5.4 billion in free cash flow while spending $0.3 billion covering its dividend obligations. The firm continued to hold off on share buybacks during this period. At the end of October 2021,NVIDIA had a net cash position of $8.4 billion with no short-term debt on the books. We are huge fans ofNVIDIA's pristine balance sheet and balanced approached to capital allocation decisions.\nImage Shown: NVIDIA has historically been a tremendous generator of free cash flow, and we forecast that will continue being the case going forward. Image Source: Valuentum\nValuation Analysis\nWe thinkNVIDIA is worth $247 per share (under our base case scenario) with a fair value range of $183-$311 per share (the lower rung of our fair value estimate represents our bear case scenario and the upper rung represents our bull case scenario). The near-term operating forecasts we used in our enterprise cash flow models, including revenue and earnings forecasts, do not differ much from consensus estimates or management guidance.\nOur discounted cash flow models reflect a compound annual revenue growth rate of 24.7% during the next five full fiscal years, a pace that is higher than the firm's 3-fiscal year historical compound annual growth rate of 19.7%. Our models reflects a 5-fiscal year projected average operating margin of 49.2%, which is aboveNVIDIA's trailing 3-fiscal year average (in fiscal 2021,NVIDIA's GAAP operating margin stood at 43.6%).\nBeyond Year 5 (five full fiscal years from the end ofNVIDIA's latest fiscal year), we assume free cash flow will grow at an annual rate of 10.9% for the next 15 fiscal years and 3% in perpetuity. ForNVIDIA, we use a 9.8% weighted average cost of capital to discount future free cash flows. The coming graphic down below highlights the key valuation assumptions used in our base case scenario covering NVIDIA.\nImage Shown: An overview of the key valuation assumptions used in our cash flow model covering NVIDIA under our base case scenario. Image Source: Valuentum\nImage Shown: NVIDIA's long growth tail underpins why most of the intrinsic value of its equity comes from its forecasted free cash flows, discounted at the appropriate rate, during the Year 6+ period into perpetuity. Image Source: Valuentum\nPlease note thatNVIDIA could exceed the key valuation assumptions within our base case scenario. For instance, its revenue might grow at a faster pace than our cash flow model is assuming asNVIDIA pushes into the CPU space while powerful secular growth tailwinds underpin demand for its semiconductor offerings. Additionally,NVIDIA's operating margins could expand at a more robust pace than our cash flow models are assuming if the uplift from economies of scale and its immense pricing power outperforms.\nWith this in mind, we like to provide a range of potential outcomes that take into the chance for a firm to outperform or underperform the key valuation assumptions used in our cash flow models. ShouldNVIDIA outperform, the top end of our fair value estimate range sits at $311 per share.\nImage Shown: At the top end of our fair value estimate range, NVIDIA has an intrinsic value of $311 per share. Image Source: Valuentum\nFuture Path of Fair Value\nAs time passes, companies generate cash flow and pay out cash to shareholders in the form of dividends. The upcoming graphic down below compares the firm's recent share price with the path ofNVIDIA's expected equity value per share over the next three fiscal years, assuming our long-term projections prove accurate. The range between the resulting downside fair value and upside fair value in Year 3 represents our best estimate of the value of the firm's shares three full fiscal years hence.\nThis range of potential outcomes is also subject to change over time, should our views on the firm's future cash flow potential change. The expected fair value of $327 per share in Year 3 represents our existing fair value per share of $247 increased at an annual rate of the firm's cost of equity less its dividend yield. The upside and downside ranges are derived in the same way, but from the upper and lower bounds of our fair value estimate range. ShouldNVIDIA outperform, its fair value estimate could grow to over $410 by Year 3.\nImage Shown: We forecast that NVIDIA's fair value estimate will grow significantly over the coming fiscal years. Image Source: Valuentum\nConcluding Thoughts\nThoughNVIDIA's planned acquisition of Arm will probably not go through due to growing and sizable antitrust concerns,NVIDIA's growth outlook is still quite bright.NVIDIA has a fortress-like balance sheet, stellar free cash flow generating abilities, and has been growing like a weed in recent fiscal years. Powerful secular growth tailwinds, such as the proliferation of e-commerce, cloud computing, AI, and autonomous driving offerings all underpinNVIDIA's bright long-term growth outlook. Shares of NVDA yield a negligible amount as of this writing as management prefers to invest in the business and build up cash on hand to fund acquisition activities. Virtually all ofNVIDIA's upside comes from its capital appreciation potential.","news_type":1},"isVote":1,"tweetType":1,"viewCount":779,"commentLimit":10,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"symbols":[],"verified":2,"subType":0,"readableState":1,"langContent":"CN","currentLanguage":"CN","warmUpFlag":false,"orderFlag":false,"shareable":true,"causeOfNotShareable":"","featuresForAnalytics":[],"commentAndTweetFlag":false,"andRepostAutoSelectedFlag":false,"upFlag":false,"length":12,"xxTargetLangEnum":"ZH_CN"},"commentList":[],"hasMoreComment":false,"orderType":2}