Self-assignment: NVDA EV/FCF Projections

I am posting this here to hold myself accountable to update my EV/FCF projections for NVDA following their most recent quarter…making up some hypothetical future “fair values” for the share price under different scenarios. I was up too late last night finishing up a review for work, but hopefully I will be able to stay awake long enough to complete this self-assigned task tonight.

If I get froggy and get into a groove, I may update Arista as well and try to have Pure Storage set up to be ready to easily plug in numbers when they report on Monday after the market closes. I need to get it set up to easily update TTM numbers with each quarter anyway.



I didn’t finish this as soon as I had desired and I have not yet formatted it to easily plug in quarterly numbers and get TTM updates, but here is a link to my latest spreadsheet for NVDA using the ideas from my post several months back about using EV/cash flows as a superior valuation metric (… ).…

The key takeaway here, much moreso than the future projections, is the current valuation (see the green highlighted cells).
In summary, what those show is that as of shortly after the prior quarterly announcement, with NVDA’s share price at about $245/share as of March 9, 2018; NVDA had an EV/OCF ratio of 42.8.
With the growth from the latest quarter and the approximately $246 share price from the close on Friday May 18, 2018; NVDA currently has an EV/OCF ratio that has dropped to 32.1.

Does it make any sense for the EV/OCF ratio to have basically dropped from 43 to 32 with an announcement of a quarter of actual results with >65% year-over-year revenue growth, and crazy high operating margin of 44.5%?

What is that rule of 40 that keeps getting bandied about in Sauldom/NPI-dom…revenue growth plus operating margin, right? Doesn’t that put NVDA’s present “rule of 40” score at about 109? Yes, they are not a SaaS company, but they aren’t just an ordinary old hardware company either.

The market reaction to NVDA’s latest earnings seems to be quite behind…and the analyst price target updates to be mostly all above $300 per share seem to make a considerable amount of sense where I am sitting.

long NVDA



I enjoyed this attempt. I think it demonstrates why discounted cash flow analysis is such an impossible feat. You’ve come up with a 2023 Market Cap for NVDA of anywhere between 140 billion and 643 billion. So either it will be worth slightly less than it is now, or it will be worth more than Facebook. As we all know, Facebook is one of the largest companies in the world, so that kind of illustrates the magnitude of what NVDA would have to accomplish to get there.

To me, this reinforces the idea that whether an investment turns out well or poorly depends on whether your thesis is correct. If you believe NVDA will continue to grow as rapidly as your best case, it will be a superb stock to hold. At even your base case, what is that, 60-something percent higher than today?? Not a great 5-year return. I just see more fertile ground elsewhere. I’ll buy SHOP at 15 billion vs NVDA at 150 billion any day.

I have also been wrong on NVDA so far. So take this for what it’s worth.



Thanks for the feedback, Bear.

Yes, predicting the future to get an accurate discounted cash flow is definitely an impossible feat, but trying to discern reasonable ranges seems to be a worthy task, as free cash flows are really what a valuation should be based on.

Having knowledge of or investments in different companies at different times can definitely cause widely disparate views about their future outlooks as an ongoing investment, for sure.