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last week was the worst week in the stock market for big tech company since the covid crash of 2020 and we can see a horrific week for semiconductors like Nvidia down more than 13% so in today's episode we're going to take a look specifically at Nvidia understand why this massive drop in fact just Friday alone down 10% whether it's something to worry about whether or not in actual fact it does look to be undervalued straight away we can see Wall Street do give it a strong buy rating so we want to run through this company we will refresh ourselves on the health of this company as well as seeing as now what our insiders doing what are the institutions doing and also remind ourselves of how strong a company NVIDIA is and also we want to talk about their outlook for FY 2025 and we can kind of get a sense of how they are going to perform based on Taiwan semiconductors who did give us a little sneak peek of how Nvidia are going to perform in their latest earnings and what we're also going to do in today's episode is not just get to our intrinsic value of Nvidia but we want to run through how we get to this number and we're going to look at three different growth rates so you can see what you would maybe believe this company to be valued based on the different growth rates looking forwards so let's start off firstly with why there was a massive crash and we can see here that the US Stock Market suffer their overall worst run since October 2022 now the technology specific sector was the worst run in fact since Co crash so overall the market isn't looking too great and we can see that now let's take a quick look at the reasons exactly why this may have happened and what we can expect for the next week so a few things that we do need to discuss firstly we can see investors are a little bit worried about the US Federal Reserve the reason for this and we've talked about this a lot over the last few weeks there may just be one quarter point cut interest rate this year and there are some that are believing that maybe 2024 we will see zero rate cuts the other thing to consider is the rising tensions in the Middle East we have the retaliation strikes between both Iran and Israel which is giving a lot of anxiety to investors which is stopping this Market from continuing it very strong run in fy4 but what we are seeing is in fact analysts don't believe that any of these reasons are that for the major set off that we saw on Friday alone and they do see this is being essentially driven by investors who are repositioning their portfolios as there is a massive run of big Tech earnings next week that we will cover on this channel now when we do look at the calendar next week we can see a lot of big companies in the tech sector that are reporting and as always if you are subscribed to this channel we will be taking a look at each one of these earnings to discuss our thoughts as and when they are released on top of that not just Nvidia as we mentioned but also super micro computers had an incredibly poor day they were down 23% and this is essentially a worry given the fact as we can see they broke away from when they were typically expecting to announce their earnings so that has spooked investors massively they are worried that essentially with their earnings it is going to be than analyst expectations which may in fact plunge the market further now when we take a specific look at Super Micro computers they were down just 23% yesterday or in fact Friday depending when you are watching this you can see it is still in the midpoint of the 52 we range so something to consider with a lot of earnings that are going to be taking place and essentially the market and analyst who are getting very spooked and worried with this upcoming analystic expectations now if you did watch our episode when we did run through the Taiwan semiconductor earnings this may not be news to you but for those that did this is some important points that will affect Nvidia firstly they beat both revenue and their profit expectations for their first quarter and they put a lot of this on this strong AI chip demand now why is that important to Nvidia you may be asking well Taiwan semiconductor manufacturing are the world's largest producers of advanced processes and essentially their top clients are are Nvidia and Apple so if they are saying that a strong demand for these chips is essentially helping their business grow then it means that Nvidia and the likes of Apple are buying this because they also have the own demand from their own customers so this can be seen as a positive sign for NVIDIA now let's take an actual look at the company as we can see over the last 12 months they are up an incredible 173% year to dat still even after the drop up 54% but as we can see down 10% on Friday and over the last week down pretty much that 15% again over the last 10 years though this is a phenomenal company up nearly 18,000 and we can see that drop has made barely a dent in that very impressive run now they are trading towards the mid to uper end of the 52- we range they yield very minimal 0.2% we can look at that a bit later and the forward p is sitting at 31 as we mentioned Wall Street do still consider this a very strong buy now very quickly we just want to show you that in terms of their Topline Revenue growth they have seen some astronomical growth in fact under 5 billion in January 2015 61 billion in January 24 and when we look at the graph this is a company with some very very strong growth to their Top Line although we do know the majority of this is just over the last few years when we have seen AI become a lot more prominent in the discussions in the market and the analysts and more of a need of these products in terms of the bottom line it follows suit as well 631 million to just under 30 billion and again we can see it has really taken off over the last few years now what I always like to do very quickly we always like to update ourselves on the health of this company their total cash versus their total debt 4.6 billion going to 26 billion so their cash balance is increasing over the longer term and what we like to do with that 26 billion is compare it both numerically and directionally to their total debt just to give us a quick look of the health and we can see even though it has increased from 1.4 billion to 11 billion we note that exactly their cash is more than enough to pay off all of it even though we do see it rising over the period so no worries with the health of this company either and what we want to do very quickly look at some of their underlying metrics the first one growth now they get an A+ pretty much across the board which is very strong the highest grade obtainable year-on-year growth we're talking 100 26% with the median in the sector of the industry leaders 4% we're looking on a forward basis they're expecting over 71% others are expecting around 7% and we can see the same across the board on their earnings per share year-on-year increase of 35% across the board just some very strong metrics the same can be said as well when we look at their profitability again an A+ rating the highest score they can obtain when we look at the ebit margin 54% above the industry around 4.86 again gross profit as well very very strong and their bottom line 49% is incredible especially when you factor in that the sector medium sits at 2.7% so lots to like about this company and what we always like to do is just compare how they've performed versus others in the industry as we can see here we have a lot of well-known companies as we mentioned earlier Taiwan semiconductor broadcom AMD qualcom Intel and over the last year again no surprise is NVIDIA has been the best performing up 173% over the Last 5 Years again incredible performance and over the last 10 years no company can come near it whatsoever but what I would say do bear in mind that just because they've performed incredibly over the last 10 years it doesn't necessarily mean they will repeat that as past performance is never an indicator of future performance now in terms of Insider ownership it is quite a fair amount compared to other companies we analyze around 4% we've noticed nine different insiders over the last 12 months sell 347 Million worth of shares in fact every single quarter we can see pretty much for the last few years an Insider has been selling and notably over the last few weeks in fact we have Mark a Stevens a director sell on two different occasions we have the end of March as well as the beginning of April a number of shares in fact signaling a fact around $30 million for him it's difficult to say if this is necessarily a bar signal we do see he has sold when the price was much higher but we also don't know the reasons why he's sold personal or financial we typically like to look for buy signals as that does effectively give us a bullish signal because there's only one reason why insiders buy that is because they believe the share price will go up now institutional ownership sits around 65% we see 47 a half billion worth of sales with a lot more worth of buys with these institutions what I quite like to see is the more recent quarter Q one of 2024 a lot more buying than selling so not just over the last 12 months but also as we can clearly see in the more recent quarter q1 of 2024 institutions have been buying a lot of shares of Nvidia now what we like to do before we jump into the metrics as well as just touch on their dividend safety what we've seen from their latest investor presentation they are growing across the board not just free cash flow which for me is a very important metric we do see inconsistencies but just that growth over into the last year has been very very strong they are also doing a lot of share repurchases which is also nice remember that does essentially give excess cash to investors essentially increasing the portion of a company that you hold and we can in fact see as we mentioned earlier their revenue not only increasing this is very very important to note but they are also increasing their gross profit margin over the longer term 34% in fy20 FY 24 61% now what's very nice to note from this not just Revenue increasing and the margin but when we do come to look at their forward guidance we will see increases as well finally we can see their data center element of their revenue in fy21 has increased over the last few years to 78% as we see that need for AI increase further and further year on year now finally just wanted to point out that when we take a look at their forward guidance they are expecting their revenue for the first quarter of fy2 to be 24 billion now just to put that into comparative we can see in their latest quarter they did have around 22 million so what is very typical with Nvidia is every quarter they somehow managed to increase their Top Line and it is expected based on their guidance for them to increase on top of that which is very important they are expecting gross margin of between 76.3 to 77% and as we can see that is even higher than FY 24 which was a massive jump from FY 23 so lots of things to know here lots of positive to take but as always important is not just the essential company but also the valuation which we will touch on very soon also just to let we do run in this article essentially where we get all of our resources from that we take a look at in our episodes on a day-to-day basis but the beautiful thing is you also get instant access free as well to all of our other articles so do click on that pinned comment below now let's take a look at their metrics firstly we will just touch upon their dividend safety as they do pay a dividend to be transparent and consistent with our other episodes 89 score very safe market cap now under 2 trillion after the drop last week but they are still a mega cap company last recession well they didn't pay a dividend so no comparative data but their sales was - 35% well below the average of the S&P at -12 and they also massively Trail the S&P -78 when the S&P was bringing in - 55 dividend growth well this isn't essentially a company that you get for the dividends they haven't increased it since 2018 1% on average over the last 5 years and 8% over the last 10 years and they have effectively been paying a dividend for the last 11 years without a reduction now dividend yeld Theory typically is what we look for but in all honestly it isn't one that is appropriate for this company what we can take a look at though is the forward pee and we know over the Last 5 Years their forward P has on average been 41.3 right now sitting at 31.4 and when We compare it it is still higher than the information technology at 24.9 in terms of the free cash flow power again very meaningless but just for the consistency it does sit currently around 1% and expected to be there next year as well terms of the free cash flow now as we discussed when we took a look at their presentation we can see that their free cash flow has increased dramatically over the last few years but when we do take a look at this we can see that fy2 is expected to continue to grow in fact more than 100 100% into next year bear this in mind when we do come and take a look at our valuation as we will be considering the growth rates on the low medium and high B agage now when we move on to the sales growth very very strong in fact next year they expected to grow as well in the double digit or very high double digits typically steady moderate companies we want 3 to 7% growth this is a massive company growing at very large rates as we can see nearly double digits every single year although we do want to point out FY 23 not not too long ago they were flat when we take a look numerically then just another format to what we looked earlier we draw your attention to the shares outstanding now over the last 10 years they would have diluted your position as that has increased but two things we will say firstly you wouldn't care because the share price grew astronomically and the second thing to not is as we ran through they are expecting to do a lot of share BuyBacks over the next few quarters so that will be nice for those investors terms of roic return on invested capital i personally like to see 10% or more industry specific 12% or higher and what we can see they have been increasing over the longer term 2024 was an incredible year if they manag to continue like this year on year this will be incredibly attractive for investors if you manage to get the valuation on point when we take a look at the margins nothing really negative to knowe lots of positives across the board well above the minimums in the more recent years 54% in FY 24 and as we looked earlier they are expecting to increase their margins as as they go on quarter on quarter and the free cash flow very very impressive a massive jump from FY 23 of 14% to 45 in 2024 n de to ebit D so this is the earnings before the interest tax depreciation ammortization and this shows us two things one the dividend safety which in all honesty isn't a main aspect in today's episode and the second is the balance sheet strength we want it below 1.5 and these are the number of years it would take them to pay off all of their debt net of cash on hand as we ran through it wouldn't even take them one day not only just over the last 10 years but also into fy2 so a very strong company when looking at it from that perspective as always if you enjoy the content so let's jump in today's episode now what we have is the free cash flow growth year onye average growth sits at 94% now we've gone for around 24% a lot lower than the average lower than what the analysts are expecting bear in mind next year they are expecting a 100 or over 100% growth of the free cash flow but as always this isn't something they are going to be able to maintain year on-ear so we've gone around 24% with the e cash flows tract total debt get to based on this we get an intrinsic value of $939 with the market value at $ 760 we do get an undervaluation signal now on our videos a lot of people do like to say that these are very high estimates so we've actually used this as the high estimate for today's episode at 24% so what we can move on to then is a 22% so make it lower what we note if that is what you believe at 22% it still would give you an undervaluation signal of $822 if that is still something that you believe is too high and you believe 20% is a more conservative or realistic approach you could see that the intrinsic value would say that is overvalued so we have those four levels a low medium and high they would give you a different value depending on what input you would put in as always though you can grab a copy of this model to get your own intrinsic value of Nvidia of other companies in your portfolio or those on your watch list by clicking on the pin comment below now just to run through before we take it to the next stage for those that do believe 20% is too high and you were looking at something at 15% this is what it would pull out an intrinsic value of around $510 and conversely if you believe 24% is too low added growth rate of 30% moving forwards it would be around 1,400 which if you have seen other episodes that is what analysts at a higher rate are expecting so today's episode let's pull through a growth rate of 24% and the intrinsic value then in today's episode is just that DCF model as always though we do run through the majority of these models in each episode but it can be different depending on the stock itself so with this intrinsic value at $939 we always use a margin of safety of 10% and we execute on that if it meets three golden criteria that is a wide Mo which you could argue for NVIDIA it does hit those three now in terms of a margin of safety we keep going till it's near the current trading price to know what it is for today's episode and in all honesty it isn't too far off a 20% MOS level what I would say then in today's episode it does sit between 15 to 20% in terms of Wall Street and what they forecast over the next 12 months well they believe the sh price will go up significantly to around $11,000 and5 with upside of 32% as we saw at the beginning of the episode they do believe this to be a strong buy now however as always do let us know your thoughts in the comments below throughout the whole episode what did you think is this one you are looking to add maybe one you have on your watch list or maybe you sold it a few weeks ago when it was significantly higher this isn't one that I personally hold indirectly though it is one that I hold through ETFs directly it isn't but if this does start to come down and we have around a 25 MOS level around a $700 Mark which it could happen over the next few weeks this is one that I will probably start to add as we can see it is a wide mode company it does have some strong financial metrics and some good forward-looking data but as always do let me know your thoughts below and as always we'll see you all on the next one
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