Nvidia Stock: It’s Still Game On (NASDAQ:NVDA)

Last week, NVIDIA Corporation (NASDAQ:NVDA) reported preliminary results for its second quarter fiscal 2023. The preliminary results show second quarter revenue to be $6.7 billion versus $8.1 billion as initially projected. This 17% decline in revenue is being attributed to lower sales in its gaming division, which includes chips used for cryptocurrency mining. However, the company believes that its long-term gross margins are intact, which should temper a potential decline in earnings growth.

Despite the difficulty in Nvidia’s gaming division, the company overall should be able to continue to grow its revenue, albeit at a more meager rate. At 49 times earnings, this is a more modest valuation than the company’s stock has been trading at in the last year.

Analysis

Buy Rating: I have a Buy rating for Nvidia’s stock with a five-year target price of $380 per share.

In my analysis of Nvidia stock, I believe the company can continue to grow their revenue long term in the low 30s. I used a 31.25% growth rate in revenue. With the company’s stated confidence of maintaining their gross margin in the low 60s, I believe they can conservatively achieve net margins of 25% knowing that they have consistently achieved net margins over 30% the last five years.

Aside from the stock’s weekly fluctuations, I’m estimating that the stock’s price-to-earnings ratio (P/E) will contract a little to the mid-forties at 46, even though there may be room for expansion as the stock participates in the overall market recovery. Lastly, the board of directors increased and extended the company’s share repurchase program, and I am estimating a decrease in outstanding shares by 83 million shares based on current prices.

Below is a table contrasting the company’s current metrics and stock price to the 5-year estimate:

Nvidia	Current* (as of 8/12/22)	5-Year Estimate
Revenue (in millions)	$26,914	$79,857
Net Margin (%)	36.23%	25%
Net Income (in millions)	$9,750	$19,964
# Outstanding Shares	2,535,000,000	2,416,670,000
Net Income per Share	$3.85 per share	$8.26 per share
Price/Earnings (PE) Ratio	48.6	46
Stock Price	$187.09	$380

Click to enlarge

Source of company metrics: Morningstar, Nvidia

*Current metrics based on fiscal year end 2022

Author’s Note

As a long-term investor, I provide a 5-year price target. In identifying a stock for a Buy rating, I look for stocks that can double in price within 5 years. This would produce close to a 20% annual return which would still exceed the market’s long-term average annual return of 8.91%.

When estimating a target price in the future, I try to be as transparent as possible in the methodology and metrics I use in my analysis and research to gain the reader’s confidence in my conclusions. This is a methodology that I have successfully used for over 25 years as an investment adviser and portfolio manager through the bull market of the 1990s, the dot com bubble, the credit crisis of 2008-2009 and more recently through the Great Resignation.

To better understand how to read the table above, read my previous article, Meta: Attractive Valuation.

*Disclosures: Author is not providing investment advice via this report. This report is not a solicitation to the reader to purchase or sell this stock. Author does not guarantee any returns. The 5-year estimate in this report is an estimation based on proprietary methodologies and is not guaranteed. Reader should consult a financial advisor before making any trades related to this stock. Readers of this report attest that they rely on their own conclusions with respect to any actions (buy, sell or hold) they take regarding this stock.