July 25, 2024 | 2:17

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Nvidia: Is it a good investment?

Jesus Carames

June 15, 2024 | 5:25 pm

Impressive growth and diversification

Nvidia Corporation has established itself as a leader in graphics, computing and networking solutions. Its applications range from cloud computing, gaming, automotive platforms and data centers, to other technology sectors. This article explores the factors that make Nvidia an attractive investment option and the potential associated risks.

Financial and growth data

Over the past five years, Nvidia has shown compound annual growth (CAGR) in its stock of 97.9%, highlighting its impressive performance in the market. Over the last year, the company has achieved a gross margin of 75% and a free cash flow (FCF) margin of 49%. These margins reflect the efficiency operational and the ability to generate significant income.

La source of income Nvidia's core business comes from data centers, which represent the 78% of its total income, followed by the gaming sector with a 17% and other sectors with a 5%. Geographically, the majority of its revenue comes from the United States and the EMEA (Europe, Middle East and Africa) region, with a considerable presence in APAC (Asia-Pacific).

Key metrics and management quality

  • Data center revenue (Y/Y): + 426%
  • Gaming revenue (Y/Y): + 18%
  • Return on equity (LTM): 79%

These figures indicate a robust growth, especially in the data center sector, where demand for Nvidia solutions continues to increase. In terms of quality, Nvidia's management receives the highest rating (5.0), along with high scores in product reviews and employee satisfaction.

Pros and Cons of investing in Nvidia

Among the latests Moravia's compositions and advantages of investing in Nvidia you will find your industry leadership and strategic vision, factors that position it favorably to capitalize on opportunities in emerging markets. However, the cyclicity of the technological market and high price of its actions represent risks that investors should consider.

Investment evaluation and viability

The analysis of the assessment Nvidia's, based on FCF growth at the current price ($128), suggests growth rates of 28% for the next 1-5 years, 21% for the next 6-10 years, and a terminal multiple of 20x. Assuming a slowdown in FCF growth, these rates reduce to 24% and 18% respectively, with a terminal multiple of 22x.

With an estimated fair value of $101, Nvidia stock is overvalued by a 23% in the current market. The difficulty in achieving these growth rates It is also a critical factor to consider.

Conclusion

Nvidia presents a attractive investment profile due to its leadership in the industry and its ability to innovate and adapt to new technologies. However, investors should be aware of the challenges associated with market cyclicality and the current overvaluation of their stocks. Evaluating an investment in Nvidia requires careful analysis of its growth potentials and inherent risks.

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