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NVIDIA Corporation
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=== 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 |}
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