BUSINESS
NVIDIA 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.
INVESTMENT RATING
Reflecting future returns on capital that are forecasted to be above the cost of capital, NVDA is expected to continue to be a major Value Builder.
NVIDIA has a current Value Trend Rating of A (Highest Rating).
The Value Trend Rating reflects consistent signals from PTR’s two proprietary measures of a stock’s attractiveness. NVIDIA has a good Appreciation Score of 84 and a very high Power Rating of 96, and the Highest Value Trend Rating results.
NVIDIA’s stock is selling well below targeted value. The current stock price of $790.92 compares to targeted value 12 months forward of $1594.
NVIDIA’s high appreciation potential results in an appreciation score of 84 (only 16% of the universe has greater appreciation potential.)
NVIDIA has a Power Rating of 96. (NVIDIA’s very high Power Rating indicates that it has a higher likelihood of achieving favorable investment performance over the near to intermediate term than all but 4% of companies in the universe.)
Factors contributing to this very high Power Rating include: the recent trend in NVIDIA’s earnings estimates has been extremely favorable; and recent price action has been extremely favorable. An offsetting factor is the Semiconductor, Related Devices comparison group is in a slightly weakened position currently.
INVESTMENT PROFILE
NVIDIA’s financial strength is exceptional. Financial strength rating is 100.
Relative to the S&P 500 Composite, NVIDIA Corporation has significant Growth characteristics; its appeal is likely to be to investors heavily oriented toward Capital Gains; the perception is that NVDA is normal risk. High stock price volatility is a relative weakness for NVIDIA. NVIDIA’s valuation is high: low dividend yield, high P/E ratio, and high price/book ratio. NVDA has unusually high market capitalization.
CURRENT SIGNALS
NVIDIA’s current operations are strong. Return on equity is rising, reflecting: improving asset utilization; widening pretax margins; and rising leverage.
NVIDIA’s current technical position is very strong. The stock price is in a 16.6 month up move. The stock has appreciated 602.0% from its prior low. The stock price is above its 200 day moving average which is in an uptrend.
ALERTS
NVIDIA Corporation (NASDAQ: NVDA) has benefited from exceptional positive changes in fundamentals: the consensus estimate for January, 2024 increased significantly, significant quarterly sales acceleration occurred, the consensus estimate for January, 2025 increased significantly, and significant quarterly earnings acceleration occurred.
The stock is currently rated A.
On 2/26/24, NVIDIA Corporation (NASDAQ: NVDA) stock rose modestly by 0.3%, closing at $790.92. This advance was accompanied by normal trading volume. Relative to the market the stock has been exceptionally strong over the last nine months and has risen 8.9% during the last week.
CASH FLOW
In 2024, NVIDIA generated a very significant increase in cash of +$12,688 million (+95%). Sources of cash were much larger than uses. Cash generated from 2024 EBITDA totaled +$34,480 million. Non-operating sources contributed +$1,103 million (+3% of EBITDA). Cash taxes consumed -$3,843 million (-11% of EBITDA). Re-investment in the business amounted to -$8,937 million (-26% of EBITDA). On a net basis, debt investors received -$1,232 million (-4% of EBITDA) while equity investors pulled out -$8,883 million (-26% of EBITDA).
NVIDIA’s Non-operating Income, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by stability for the Nvidia Peer Group as well. In most years, NVIDIA was in the top quartile and lower quartile. Currently, NVIDIA is upper quartile at +3% of EBITDA (+$1,103 million).
NVIDIA’s Cash Taxes, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Nvidia Peer Group. In most years, NVIDIA was in the top quartile. Currently, NVIDIA is upper quartile at -11% of EBITDA (-$3,843 million).
NVIDIA’s Business Re-investment, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by stability for the Nvidia Peer Group. In most years, NVIDIA was in the third quartile and second quartile. Currently, NVIDIA is below median at -26% of EBITDA (-$8,937 million).
NVIDIA’s Debt Investors, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the Nvidia Peer Group. (Since 2021 Debt Investors, %EBITDA has experienced a very sharp decline.) In most years, NVIDIA was in the top quartile and third quartile. Currently, NVIDIA is below median at -4% of EBITDA (-$1,232 million).
NVIDIA’s Equity Investors, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the Nvidia Peer Group. In most years, NVIDIA was in the top quartile and second quartile. Currently, NVIDIA is upper quartile at -26% of EBITDA (-$8,883 million).
NVIDIA’s Change in Cash, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Nvidia Peer Group. In most years, NVIDIA was in the top quartile and lower quartile. Currently, NVIDIA is upper quartile at +37% of EBITDA (+$12,688 million).
NVIDIA’s Cash, %Revenue has suffered a very strong overall downtrend over the period. This downtrend was accompanied by a similar trend for the Nvidia Peer Group. (Since 2020 Cash, %Revenue has accelerated sharply.) In most years, NVIDIA was in the top quartile and second quartile. Currently, NVIDIA is at median at +43%.
PROFITABILITY
NVIDIA’s return on equity has improved very significantly since 2015. The current level of 69.2% is 4.85X the low for the period and is at the high.
This very significant improvement was due to very strong positive trend in pretax operating return and very minor positive trend in non-operating factors.
The productivity of NVIDIA’s assets rose over the full period 2015-2024: asset turnover has exhibited a volatile overall uptrend that accelerated very sharply after the 2021 level.
Reinforcing this trend, pretax margin enjoyed a very strong overall uptrend that accelerated very sharply from the 2023 level.
Non-operating factors (income taxes and financial leverage) had a very small positive influence on return on equity.
NVIDIA’s return on equity is upper quartile (69.2%) for the four quarters ended January, 2024.
Operating performance (pretax return on assets) is upper quartile (51.5%) reflecting asset turnover that is upper quartile (0.93X) and upper quartile pretax margin (55.5%).
Tax “keep” rate (income tax management) is upper quartile (88.0%) resulting in after tax return on assets that is upper quartile.
Financial leverage (leverage) is at the lower quartile (1.53X).
GROWTH RATES
There are no significant differences between NVIDIA’s longer term growth and growth in recent years.
NVIDIA’s historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has exceeded equity growth.
Annual revenue growth has been 28.9% per year.
Total asset growth has been 26.9% per year.
Annual E.P.S. growth has been 45.7% per year.
Equity growth has been 26.9% per year.
NVIDIA’s consensus growth rate forecast (average of Wall Street analysts) is 41.5% — substantially above the average of the historical growth measures.
Relative to the Nvidia Peer Group, NVIDIA’s historical growth measures are consistently top quartile. Revenue growth (28.9%) has been upper quartile. Total asset growth (26.9%) has been upper quartile. E.P.S. growth (45.7%) has been upper quartile. Equity growth (26.9%) has been upper quartile.
Consistent with this pattern, consensus growth forecast (41.5%) is also upper quartile.
PRICE HISTORY
Over the full time period, NVIDIA’s stock price performance has been exceptional. Between April, 2013 and February, 2024, NVIDIA’s stock price rose +22878%; relative to the market, this was a +7141% gain. Significant price moves during the period: 1) September, 2022 – August, 2023: +307%; 2) November, 2021 – September, 2022: -63%; 3) May, 2019 – November, 2021: +865%; and 4) September, 2018 – December, 2018: -52%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of 215.1% is upper quartile relative to the S&P 500 Composite.
In addition to being upper quartile relative to S&P 500 Composite, current annual total return performance through January, 2024 of 215.1% is upper quartile relative to NVIDIA Corporation Peer Group.
Current 5-year total return performance of 76.8% is upper quartile relative to the S&P 500 Composite.
Through January, 2024, with upper quartile current 5-year total return of 76.8% relative to S&P 500 Composite, NVIDIA’s total return performance is upper quartile relative to NVIDIA Corporation Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, NVDA’s overall valuation is exceptionally high. All five factors are upper quartile. The highest factor is the ratio of enterprise value/assets, followed by the price/equity ratio, then by the ratio of enterprise value/revenue, then by the ratio of enterprise value/earnings before interest and taxes. The lowest factor is the price/earnings ratio.
Relative to NVIDIA Peer Group, NVDA’s overall valuation is exceptionally high. Four of five factors are upper quartile. The highest factor is the ratio of enterprise value/assets, followed by the price/equity ratio, then by the ratio of enterprise value/revenue, then by the ratio of enterprise value/earnings before interest and taxes. The lowest factor, price/earnings ratio, is at the upper quartile.
NVIDIA has a major value gap compared to the median valuation. For NVDA to achieve median valuation, its current ratio of enterprise value/revenue would have to fall from the current level of 32.64X to 9.20X. If NVDA’s ratio of enterprise value/revenue were to fall to 9.20X, its stock price would be lower by $-571 to $220.
For NVDA to fall to lower quartile valuation relative to the NVIDIA Peer Group, its current ratio of enterprise value/revenue would have to fall from the current level of 32.64X to 6.49X. If NVDA’s ratio of enterprise value/revenue were to fall to 6.49X, its stock price would decline by $-637 from the current level of $791.
VALUE TARGETS
Reflecting future returns on capital that are forecasted to be above the cost of capital, NVDA is expected to continue to be a major Value Builder.
NVIDIA’s current Price Target of $2278 represents a +188% change from the current price of $790.92.
This high appreciation potential results in an appreciation score of 84 (only 16% of the universe has greater appreciation potential.)
Reinforcing this high Appreciation Score of 84, the high Power Rating of 96 contributes to an Value Trend Rating of A.
NVIDIA’s current Price Target is $2278 (+701% from the 2024 Target of $284 and +188% from the 02/26/24 price of $790.92). This dramatic rise in the Target is the result of a +118% increase in the equity base and a +268% increase in the price/equity multiple. Each of the Value Drivers contributed to this increase in the price/equity multiple. The forecasted increase in return on equity has a huge positive impact on the multiple. The forecasted increase in growth also has a large positive impact and the decline in cost of equity did as well.
PTR’s return on equity forecast is 75.4% — substantially above our recent forecasts. Forecasted return on equity enjoyed a dramatic, variable increase between 2016 and 2024. The current forecast is significantly above the 2016 low of 13%.
PTR’s growth forecast is 46.0% — above our recent forecasts. Forecasted growth enjoyed a dramatic, steady increase between 2016 and 2024. The current forecast is significantly above the 2016 low of 7%.
PTR’s cost of equity forecast is 12.3% — in line with recent levels. Forecasted cost of equity suffered a dramatic, erratic increase between 2016 and 2024. The current forecast is well above the 2016 low of 5.5%.
At NVIDIA’s current price of $790.92, investors are placing a positive value of $669 on its future investments. This view is consistent with the company’s most recent performance that reflected a growth rate of 40.0% per year, and a return on equity of 30.8% versus a cost of equity of 12.5%.
PTR’s 2026 Price Target of $2278 is based on these forecasts and reflects an estimated value of existing assets of $227 and a value of future investments of $2051.
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