NVIDIA Corporation (NASDAQ:NVDA) has jumped an impressive 305% since its October lows.
Although many perceive Nvidia as overvalued, thinking that the stock will collapse, they have not considered its real economic value and potential.
Through calculation based on the discounted cash flow ('DCF') model and taking into account the future revenues of 2023, the correct price should currently be $451.90 instead of the current $439.00. This suggests that Nvidia is actually undervalued at the moment.
Nvidia's impressive growth is primarily attributed to its data center business, while other divisions saw modest growth.
Data Center revenue growth over the first two quarters has been incredible, up 140%. The data center market is expected to see continued revenue growth, with a compound annual growth rate (CAGR) of 4.66% between 2023 and 2027.
2023 saw an explosion in Nvidia's profits, driven by the thriving Artificial Intelligence market, which is a highly important and rapidly expanding sector, with a projected compound growth rate of 17.30% from 2023 to 2030. It is expected that by 2030, 70% of companies will embrace AI in their operations, a significant increase of 35% from 2023.
This makes now the right time to invest in AI and seize the opportunities it offers.
Moreover, Nvidia is in an excellent financial position.
Its operating margin is currently an outstanding 29.42%. While these numbers are slightly lower than all-time highs, in fiscal year 2022 at 37.31% and 36.23%, respectively, they still remain impressive.
If we take Nvidia's debt into consideration, this company stands out for its relatively low levels of debt. At the moment, its total debt stands at $9.9 billion with the debt-to-equity ratio being very low.
From a technical point of view, the trend is bullish.
Prices settled above the 200-day moving average and recorded increases with above-average volumes.
What will Nvidia's results be in the future?
According to analysts' estimates, Nvidia's annual revenue growth rate will be around 44% (My forecast is that the percentage will be higher). If this estimate is reached, the DCF model would predict a value for Nvidia of $882.18, with an annual return of close to 100% over the current stock price ($455.72).
Keep in mind that the market is always efficient and leading, so it discounts events on average 6/12 months in advance. When it comes to AI investments, there are risks, such as the impact of a recession.
However, knowing the nature of businesses, technologies that lead to cost reduction and increased productivity are always implemented.
My prediction according to my model is that the stock will trade at around $882 during the second quarter of 2024.