To The Moon

$NVIDIA(NVDA)$

Nvidia faces increasing competition in the AI industry, prompting the company to explore new opportunities for growth. One of its significant ventures is into robotics, with plans to launch compact computers tailored for humanoid robots in the first half of this year. The question arises: can Nvidia become a dominant platform in the robotics revolution, similar to its success in AI, or could this strategy backfire, creating challenges like Meta faced with the metaverse?

This analysis will evaluate Nvidia’s current position, assess its future potential, and determine its intrinsic value to gauge its investment appeal.

Nvidia's Financial Performance and Market Position:

1. Historical Growth: If you had invested $1,000 in Nvidia 10 years ago, you would have acquired 1,961 shares (adjusted for stock splits). Today, those shares would be valued at approximately $268,647. Including $322 in dividends, the total returns would reach an impressive $268,969 over a decade. This underscores Nvidia's remarkable performance but also highlights the importance of holding onto investments long-term.

2. Insider Ownership and Transactions: Individual insiders own 3.9% of the company, exceeding the 2% benchmark, which suggests that management has a vested interest. However, recent insider selling indicates caution, even though eight prominent super-investors, such as Lee Ainslie, Chase Coleman, and David Tepper, hold shares in Nvidia. These super-investors collectively purchased 1.2 million shares in the last quarter while selling only 66,000.

3. Profitability Metrics:

   Return on Invested Capital (ROIC): Nvidia boasts a 10-year median ROIC of 22.5%, far surpassing the 10% target.Net Profit Margin: Nvidia's five-year average profit margin is 30.6%, compared to the industry median of 5.1%, emphasizing its leadership in the sector.

4. Share Buybacks: Nvidia issued 2.9% more shares over the last decade but has begun repurchasing shares since 2022. While this indicates confidence, the timing of buybacks at high stock prices may be questionable.

5. Debt and Financial Health: Nvidia is in an excellent financial position, with enough free cash flow to cover its long-term debt in just one month.

Growth Metrics:

• Revenue Growth: A compound annual growth rate (CAGR) of 30.9% over 10 years.

• Free Cash Flow Growth: CAGR of 46.2% over the same period.

• Earnings Per Share (EPS) Growth: CAGR of 51.3% over the last decade.

These figures highlight Nvidia's exceptional growth, making its past stock price appreciation understandable.

Dividend Policy:

Nvidia offers a modest dividend yield of less than 0.1%, with a payout ratio of just 1.3%. While dividends are minimal, this aligns with the strategy of reinvesting earnings for growth.

What about dividend growth? It's a strong point, with a 16.3% five-year growth rate. While the dividend remains a relatively small part of Nvidia's appeal, it adds a nice bonus to its financial health and growth story. However, the critical question is whether all of this potential can be had at a reasonable price.

Valuation Analysis:

• Price-to-Earnings (P/E) Ratio: At 53.2, Nvidia's P/E ratio indicates it is an expensive stock.

• To determine intrinsic value, a discounted cash flow (DCF) analysis was performed:Low Scenario: Nvidia grows at 15% for the first five years and 13% for the next five. Intrinsic value: $71.Medium Scenario: Growth at 20% for the first five years and 18% thereafter. Intrinsic value: $111.High Scenario: Growth at 30% for the first five years and 25% thereafter, mirroring Nvidia's past decade. Intrinsic value: $187.

Margin of Safety:

Applying a 30% margin of safety to these valuations:

• Low Scenario: $49

• Medium Scenario: $70

• High Scenario: $130

Given a current price of $137, Nvidia appears expensive but not egregiously so, especially when considering its industry dominance.

Perspective:

Nvidia demonstrates:

• Exceptional growth,

• Robust financial health,

• Leadership in the semiconductor industry.

When compared with its peers using a stock-ranking system:

• Nvidia ranks second-best overall among all analyzed companies.

• In the semiconductor sector, Nvidia is #1, even when valuation is considered.

Investment Decision:

Nvidia's performance and dominance make it a compelling investment, but the decision ultimately depends on your outlook:

• Optimistic Scenario: Nvidia continues to lead AI development and revolutionizes robotics, maintaining its industry dominance.

• Skeptical Scenario: Rapid technological evolution and volatile industry dynamics make it a risky bet.

Investing in Nvidia is a blend of conviction in its growth story and the inherent uncertainties of fast-moving industries. As they say, investing is simple, but not easy.

Conclusion:

Nvidia has demonstrated extraordinary growth, robust profitability, and solid financial health. Its venture into robotics could unlock new opportunities, but risks remain, particularly if the move does not deliver the expected results. Investors must weigh the company's track record against the uncertainties of entering a new industry. With its strong fundamentals and growth potential, Nvidia remains an attractive option, though due diligence and a clear understanding of its valuation are crucial before investing.

@Daily_Discussion @TigerPM @TigerObserver @Tiger_comments @TigerClub