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Nvidia is the main topic of conversation. This year it's promotions. They have grown by 216% since the beginning of the year. They reported earnings last week. They simply destroyed revenue, destroyed profits. They rose after the market opened to 515 per share at one point. But, guys, a strange thing happened.
It fell, which fell even that day to 474, and now it's down to 454. The Nasdaq stock market index actually rose today, and Nvidia actually fell 1%. So in this video we'll look at some news, predictions for bullish and bearish trends, and some analyst estimates. We will consider several comments. A comment we received on our last video about Nvidia.
So we like to do things like that. So in this video we'll have stuff for beginners, something for more experienced investors, and everything in between. So, no matter where you are on the spectrum, stay with us, watch this video. We'll end with what you're probably most concerned about, which is: what price to pay for Nvidia stock.
So, let's begin. Again, the stock is now down about 1.2%. Our historical high is based on intraday and closing data, and it shows 502.30, but that is not true. The actual aftermarket high was around 515. Can someone...Can someone find out in the video? Write in the comments below what our actual historical high was, including pre-market and post-market periods.
So, some news about Nvidia. One of the most important things they're doing, guys, is they're planning to triple production of their $40,000 artificial intelligence chip. Triple. That's how they were able to surpass their grades. And they were targeting... First, they were targeting $12 billion in revenue per quarter.
They increased it to $16 billion . So guys, the question arises, why did the stock fall from that high of 515? This does not mean that the stock will fluctuate. The situation is fluctuating . This could be an overbought stock that just needs a breather. I have no idea. But it's quite interesting. The market capitalization is $1.12 trillion.
1. This means that if you bought all the shares outstanding , that would be the market capitalization. Interesting. The value of the enterprise is 1.13 trillion. This difference here is essentially their debt. This company is almost completely debt-free, and that's great. It's like your home, guys. If you have no debts, it will be very difficult for you to go bankrupt.
Nvidia will be very difficult to bankrupt. They've been around for so long and they make such great processors for their graphics cards and all that. One of the problems I have with Nvidia is that they are always jumping from market to market. So, one of the downside scenarios for Nvidia is their automotive division, which alone was supposed to generate a billion dollars in revenue per year, but is now down 15% year-over- year.
So, quarter after quarter–that's a lot. That's a lot, guys. I'm worried that Nvidia is always jumping the gun. First there was cryptocurrency, then this, and now artificial intelligence, and it's like, "Okay, they make a great graphics card processor, and that's not going anywhere, but they're jumping from market to market, using whatever is popular right now." This is also good because they are able to change very quickly to adapt to the market.
I also like the companies I want to focus on. Again , maybe I'm being too picky about Nvidia, but that's the problem. Another thing, their price-to-sales ratio dropped to 34 because they cut their revenue so much. Now, in one of the comments from one of our YouTube users, Diddy Ag 13, it was written: “If we base this on next year’s numbers, their price- to-sales ratio would be 15, not 47.” Because last week it was around 47, before taking into account the previous quarter's revenue.
Fair enough, and he's right, but 15 is still expensive. So, the price/ sales ratio divides a company's market capitalization by its revenue. OK? Let's look at some companies. Microsoft, which I think is still overvalued, is selling for 11.3. So 15 is still a lot for Nvidia, and the difference is that Microsoft's gross margin is 59%.
Nvidia reported a 70% gross margin last quarter, but before that it was around 40%. So, that's a great price/sales ratio. Let's look at Apple. Apple's price/sales ratio is 7.3. So even at 15, it's twice Apple's price/sales ratio. And I'm not buying Apple for 179. So those are things to consider. And I also believe that when the prices of things exceed the prices, people increasingly start to look to the future.
Well, yes, but if you take the income or profit next year or 2 years from now, it's pretty reasonable. Yes, but they still have to earn it. Don't pay them today for what they are going to do in the future. Right? It is possible, to a certain extent, but you still need to be conservative. You need to have a margin of safety and make sure that the company can actually achieve these goals.
OK? This is an important thing. Now, some big numbers for Nvidia. 42.8% return on invested capital. What does this mean? This means that the money invested in the business earns a very, very high rate of return. This allows profits to grow much faster . So when they report these really high revenue numbers, they get a big amount of earnings per share.
It's huge, and it's wonderful. This will help Nvidia increase its earnings per share. You want to buy companies that have a high return on invested capital and can also reinvest at that high rate of return. So , if Nvidia starts building more and more factories, they will be able to make a lot more money.
I don't even know what the profitability of these $40,000 AI chips is, but it's a huge potential . Now, the bullish scenario, revenue growth of 101% compared to last year and an increase in revenue forecast from 12 billion to 16 billion. As I said. Another bullish scenario, they aim to sell 550,000 H100 chips at an average selling price of $30,000.
Similar chips in China sell for $70,000 each. So , they are not only the leader in this market, but also the leader in value in this market, the leader in price. Pretty cool. Now my biggest bearish scenario for Nvidia is right here. Jim Kramer. On August 23 at 5:44 PM, Jim Cramer wrote: "Nvidia, own this, don't trade it." This is the kiss of death, in my opinion.
Jim Cramer is a terrible investor. OK? So, he said that owning stocks probably means something bad is going to happen. I joke a little about this , but it's not 100% true. And, guys, thank you for your patience while Mo was out of town. I have to review everything he was going to say. So let's look at some...
Let's look at the eight pillars for Nvidia . Our eight pillars for Nvidia. Guys, remember, different . So guys, eight pillars for Nvidia, right here. We have five checks, three X's. I'm not worried about the shares outstanding going up a little bit , 1.85%. It does n't bother me. This worries me more.
Five-year P/E and five-year price- to-free cash flow ratio. 180 and 180. Now keep in mind that last week they were well over 200. Nvidia is increasing its profits significantly. The question is , is it sustainable? That's what's important here. You need to understand whether this is sustainable. Isn't this just a temporary boost?
That's the question here, and it's not the worst thing about Nvidia, but it's a very big potential. So you have to sit there and say, "Am I paying too high a price for this growth?" Growth is great, but if you pay too much for growth, you will lose. This is the master key. As for Nvidia, this is a question I will ask until I turn blue.
Will they be able to achieve this value? And even if they can reach that value, does that mean there is an investment opportunity? So, even if Nvidia reduces sales by five, six, seven times, how long will it take and what price do you pay to achieve that? Are you still paying the same price to catch up later ?
Because to get a fivefold increase in sales, they have $1 billion , they need $200 billion in revenue. This will take some time. This will take some time. I don't know how long, but it's not tomorrow. Estimates for next year are potentially $80 billion in revenue, according to a comment from our YouTube user who was there.
Will this happen? I don't know. We don't know what the future holds. We have to be...We want to encourage a margin of safety. Every investment is the present value of a future cash flow. And this cash flow can grow exponentially. But if you paid too much for that growth, you will lose or not make as much money as you think.
This is the master key. Okay, let's look at the analysts' estimates. So, here's what's interesting. I don't know how often this data is updated, but earnings per share are expected to be $333 in 2023 and $13 in 2020-2028. Guys, even at $13 in 2028 and $450 per share, we still have 30.32 times earnings over the next 5 years.
That seems like a lot. And it is the analysts who make this assessment. Let's look at the revenue assumptions. So, analysts...They didn't update... It probably wasn't updated on our end , but look at this. In fact, we have more analysts predicting next year than this year. 27 and a half billion compared to last year, next year–44 billion, up to 71 billion.
So who knows if it will reach $80 billion? This is something worth continuing research on. If you are in the community, start this conversation. What do you see in terms of revenue and earnings potential for Nvidia going forward? Remember, however, I strongly urge you, even if they have great growth potential, is it worth the price you have to pay today?
As our good friend the professor says, a story without numbers is a fairy tale, and a number without stories is an Excel spreadsheet. He is absolutely right. It's about putting them together to figure out where the story and the numbers make sense together. This is what is important. This is what we try to teach on this channel.
It's the process of bringing these two things together. Two great companies are exactly the same, but one has a better history and the other has better potential for which you should pay more. This doesn't mean you pay any price for it. There is still a price to pay, and it is too high for a good story.
Look, if you're a baseball fan, look at Otani. They were talking about a $600 million contract for Ohtani. And suddenly he's going to have a second Tommy John surgery, and they say it's going to be hard for him to get even $500 million for his next contract. It's still a lot, but it used to be clear, but now it's not.
The same thing happens with companies. In fact, with companies it is probably more likely. So guys, that brings us to our last question. What is the appropriate price for Nvidia stock? And that's why we have our stock analysis tool. This tool allows us to take any information about how we perceive the future.
This is a look into the future. We are conducting a 10-year analysis. We will consider revenue growth, profit rate, free cash flow rate, determine the terminal profit ratio and free cash flow price, and then determine the desired rate of return. And this will show, without taking into account the balance sheet, what price to pay for the company.
And that's really, really important for you as an investor. So, I'm going to look into this. Now remember, if you like this, it's been used over 2 million times, and we have so many other tools in this software right here. Pension calculator, analyst estimates, eight- pillar search, eight-pillar portfolio, real estate calculator.
And, guys, the real estate calculator, if you sign up now , you'll get it for life. It will be separated into separate software that will later be sold separately. But if you sign up now , you'll get it for life. And, of course , our community of like-minded investors, thousands of people communicate every day, exchange messages, because the hardest thing about investing is being alone on this lonely road, right?
This community allows you to be with like-minded investors who help you reiterate the reasons why we have it over and over again. I like that about the community. When people take screenshots of their stock analysis tool. And, guys, all of this is also available on your mobile phone. So go to everythingmoney.com, sign up.
It's only a dollar a day. We are currently running a special 20% discount. Sign up, you won't regret it. This will change the way you invest. So, let's make some assumptions about the future, but I'm just going to show you our latest Nvidia stats. We just did it on the 23rd, that was 5 days ago. I'm showing it here , ours.
If they made big numbers, but remember, it can justify big numbers, but 30% growth rate over 10 years is my high guess. 30% growth rate over 10 years. This makes their income 14 times higher than it is today. 14 times higher. They just reported $32 billion in revenue last year . This will increase their revenue from $32 billion to about $450 billion.
Keep in mind that Intel has about 55 billion. AMD is doing... What is AMD doing? They make 21 billion. Amazon makes about 560 billion. Amazon does 560. So that will make them bigger than Amazon within the next 10 years. Is this possible? Of course. I don't know what the future holds, but is it likely?
This is the question I am asking you. Good. So, let's take a look at this Nvidia we made . Revenue growth of 10, 20 and 30%, profit margins of 20, 30 and 40%, free cash flow margins of 20, 30 and 40%, which, by the way, look at these guys, they have n't even exceeded 30% in the last 10 years for 5 or 10 years.
I'm going to set 40% as the upper limit. P/E, I set a very high trailing P/E. This is the P/E and free cash flow price at which they believe the company will sell its stock in 10 years. 20, 25 and 30. It requires a huge moat, but I think if they can do it, they will have a big moat. And finally, guys, I actually only set a 10% return.
What is this company worth if you simply match the market value? Because over a long period of time in a long-term ETF you should be able to get 9 or 10% returns. So, what is the value of the company based solely on market value now? Boom, guys. The low price is 75, the high price is 950, and the average price is 290.
If you pay today's price and the lowest assumptions hold, you will lose about 10% per year. If the average assumptions hold, you will earn about 5% per year, and if the highest of the high assumptions holds, you will earn 19%. Guys, I think this is a little too risky. Go to everythingmoney.com, sign up for a dollar a day, download the software, you won't regret it. Thank you for your time.
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