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NVIDIA Corporation
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== '''<u>Valuations</u>''' == === DCF and WACC === The following table shows the values used to calculate the WACC for NVIDIA, which was found to be 14%. Units are in USD millions. The share price used in the table was the share price at market close on 28/07/2023. {| class="wikitable" |+WACC | '''Risk Free Rate of Return''' |4.2%<ref>https://markets.ft.com/data/bonds/tearsheet/summary?s=US10YT</ref> |- | '''Beta''' |1.75<ref name=":1">https://markets.ft.com/data/equities/tearsheet/summary?s=NVDA:NSQ</ref> |- | '''Market Rate of Return''' |9.8%<ref>https://www.officialdata.org/us/stocks/s-p-500/1900?amount=100&endYear=2023</ref> |- | '''Cost of Equity''' |'''14.1%''' |- | '''Credit Spread''' |1.23%<ref>[https://cbonds.com/news/2353618/#:~:text=S%26P%20Global%20Ratings%20upgraded%20to,NVIDIA%20on%20June%205%2C%202023. https://cbonds.com/news/2353618/#:~:text=S%26P%20Global%20Ratings%20upgraded%20to,NVIDIA%20on%20June%205%2C%202023.]</ref> |- | '''Cost of Debt''' |'''4.3%''' |- |'''Shares Outstanding''' |2,470.00<ref name=":1" /> |- |'''Share Price''' |467.50<ref name=":1" /> |- | '''Equity''' |'''1,154,725.00''' |- |'''Total Debt''' |11,000.00<ref name=":0" /> |- |'''Weighted Average Maturity''' |10.99 |- |'''Interest Expense''' |262.00<ref name=":0" /> |- | '''Debt''' |'''9,224.86''' |- | '''E/D+E''' |99.2% |- | '''D/D+E''' |0.8% |- | '''WACC''' |'''14.0%''' |} The following table shows the DCF valuation result. {| class="wikitable" |+DCF |'''Terminal Value''' |721,064.28 |- |'''Present Value of Terminal Value''' |207,660.36 |- |'''Enterprise Value''' |322,184.00 |- |'''Equity Value''' |326,504.00 |- |'''Share Price''' | '''$132.19''' |} The DCF calculation shows that as of 28/07/2023, Nvidia is overvalued. The stock is significantly overpriced compared to the intrinsic value of the company. This could indicate that in the future, the stock price may decline. The beta for Nvidia is also extremely high, meaning that the stock is very volatile compared to the S&P 500. This is a stock that can have very large short term fluctuations in share price, as we have seen over the previous few months in 2023. The effective tax rate used in the calculations was set at 21%, and the terminal growth rate was set at 3.3%, equal to the annualised average GDP growth rate. The following is a sensitivity analysis showing implied share price values in different growth rate and WACC environments. {| class="wikitable" | '''$132.19''' | colspan="10" | '''WACC''' |- | rowspan="8" |'''Growth Rate''' | |'''12.0%''' |'''12.5%''' |'''13.0%''' |'''13.5%''' |'''14.0%''' |'''14.5%''' |'''15.0%''' |'''15.5%''' |'''16.0%''' |- |'''2.0%''' |$158.93 |$148.25 |$138.65 |$129.97 |$122.09 |$114.93 |$108.38 |$102.39 |$96.88 |- |'''2.5%''' |$165.00 |$153.54 |$143.28 |$134.04 |$125.69 |$118.11 |$111.22 |$104.92 |$99.15 |- |'''3.0%''' |$171.75 |$159.39 |$148.37 |$138.50 |$129.61 |$121.58 |$114.29 |$107.65 |$101.59 |- |'''3.5%''' |$179.29 |$165.89 |$154.00 |$143.41 |$133.91 |$125.36 |$117.63 |$110.61 |$104.22 |- |'''4.0%''' |$187.78 |$173.15 |$160.26 |$148.83 |$138.64 |$129.50 |$121.27 |$113.83 |$107.08 |- |'''4.5%''' |$197.39 |$181.32 |$167.25 |$154.86 |$143.86 |$134.05 |$125.26 |$117.34 |$110.18 |- |'''5.0%''' |$208.38 |$190.58 |$175.12 |$161.59 |$149.67 |$139.09 |$129.65 |$121.19 |$113.56 |} === Relative Valuation === The following table shows a comparison of NVIDIA to it's competitors in the computing hardware and semiconductor manufacturing industries. All ratios are calculated based on a 5 year annualised average. {| class="wikitable" |+Relative Valuation<ref name=":1" /> |'''Company''' |'''P/E''' |'''EPS''' |'''Dividend''' |'''Dividend Yield''' |'''Dividend Growth''' |'''ROE''' |'''ROA''' |'''ROI''' |- |'''Nvidia''' |x266.26 |$1.74 |$0.16 |0.18% |2.34% |18.86% |10.69% |12.47% |- |'''AMD''' |x137.89 |$0.84 |0 |0 |0 |0.72% |0.57% |0.63% |- |'''Intel''' |x18.27 |$1.94 |$1.46 |3.14% |6.26% | -0.91% | -0.53% | -0.63% |- |'''TSMC''' |x79.5 |$1.24 |$0.35 |71.11% |6.58% |33.97% |20.34% |24.73% |- |'''Qualcomm''' |x11.49 |$11.42 |$2.86 |2.64% |5.39% |64.36% |22.14% |29.78% |- |'''Broadcom''' |x34.23 |$26.53 |$16.4 |3.33% |32.08% |63.14% |19.09% |21.23% |- |'''Apple''' |x31.67 |$6.11 |$0.9 |0.89% |8.45% |145.61% |27.63% |43.34% |} [[File:PE Ratio Nvidia.png|center|thumb|693x693px]] The price to earning ratio for Nvidia is at x266, indicating that the stock is hugely overvalued. When compared to the industry average of x52, we can see that the stock is overpriced. [[File:EPS Nvidia.png|center|thumb|692x692px]] Earnings per share for Nvidia are $1.74, below the industry average of $7, this indicates that the company is not as profitable as some of it's peers. Taking into account both P/E and EPS gives us strong evidence that Nvidia stock is overvalued. [[File:Dividend Nvidia.png|center|thumb|682x682px]] The dividend paid out by Nvidia over the previous 5 years, as well as the dividend yield is significantly below all of it's competitors. The dividend growth also lacks behind it's industry peers. This indicates that the income prospects for this stock are not as good as some of it's competitors, who are also undervalued. Note AMD does not pay out a dividend. [[File:Returns Nvidia.png|center|thumb|684x684px]] The returns on Equity, Assets and Investment for Nvidia are lower than all of it's competitors, indicating that the company is not as efficient at generating profits as others in the same industry. The relative valuation indicates that Nvidia is overpriced, does not have brilliant income prospects, and is not as efficient at generating profits as some of it's industry competitors, such as Qualcomm, Broadcom and Apple. This could mean that in the future, share price for Nvidia is likely to fall or remain stagnant. However, investor sentiment and the volatility of the stock means that we may not see a translation of the value of the stock to the behaviour of it's share price.
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