Stock Analysis on Net
Stock Analysis on Net

NVIDIA Corp. (NASDAQ:NVDA)

Present Value of Free Cash Flow to the Firm (FCFF)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

NVIDIA Corp., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 20.04%
01 FCFF0 27,243
1 FCFF1 34,326 = 27,243 × (1 + 26.00%) 28,595
2 FCFF2 42,600 = 34,326 × (1 + 24.11%) 29,563
3 FCFF3 52,064 = 42,600 × (1 + 22.21%) 30,098
4 FCFF4 62,644 = 52,064 × (1 + 20.32%) 30,168
5 FCFF5 74,189 = 62,644 × (1 + 18.43%) 29,762
5 Terminal value (TV5) 5,447,959 = 74,189 × (1 + 18.43%) ÷ (20.04% – 18.43%) 2,185,541
Intrinsic value of NVIDIA Corp. capital 2,333,726
Less: Total debt (fair value) 8,595
Intrinsic value of NVIDIA Corp. common stock 2,325,131
 
Intrinsic value of NVIDIA Corp. common stock (per share) $930.05
Current share price $796.77

Based on: 10-K (reporting date: 2024-01-28).

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Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Weighted Average Cost of Capital (WACC)

NVIDIA Corp., cost of capital

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Value1 Weight Required rate of return2 Calculation
Equity (fair value) 1,991,925 1.00 20.12%
Total debt (fair value) 8,595 0.00 2.35% = 2.63% × (1 – 10.58%)

Based on: 10-K (reporting date: 2024-01-28).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 2,500,000,000 × $796.77
= $1,991,925,000,000.00

   Total debt (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (12.00% + 21.00% + 1.90% + 1.70% + 5.90% + 21.00%) ÷ 6
= 10.58%

WACC = 20.04%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

NVIDIA Corp., PRAT model

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Average Jan 28, 2024 Jan 29, 2023 Jan 30, 2022 Jan 31, 2021 Jan 26, 2020 Jan 27, 2019
Selected Financial Data (US$ in millions)
Interest expense 257 262 236 184 52 58
Net income 29,760 4,368 9,752 4,332 2,796 4,141
 
Effective income tax rate (EITR)1 12.00% 21.00% 1.90% 1.70% 5.90% 21.00%
 
Interest expense, after tax2 226 207 232 181 49 46
Add: Cash dividends declared and paid 395 398 399 395 390 371
Interest expense (after tax) and dividends 621 605 631 576 439 417
 
EBIT(1 – EITR)3 29,986 4,575 9,984 4,513 2,845 4,187
 
Short-term debt 1,250 1,250 — 999 — —
Long-term debt 8,459 9,703 10,946 5,964 1,991 1,988
Shareholders’ equity 42,978 22,101 26,612 16,893 12,204 9,342
Total capital 52,687 33,054 37,558 23,856 14,195 11,330
Financial Ratios
Retention rate (RR)4 0.98 0.87 0.94 0.87 0.85 0.90
Return on invested capital (ROIC)5 56.91% 13.84% 26.58% 18.92% 20.04% 36.95%
Averages
RR 0.90
ROIC 28.87%
 
FCFF growth rate (g)6 26.00%

Based on: 10-K (reporting date: 2024-01-28), 10-K (reporting date: 2023-01-29), 10-K (reporting date: 2022-01-30), 10-K (reporting date: 2021-01-31), 10-K (reporting date: 2020-01-26), 10-K (reporting date: 2019-01-27).

1 See details »

2024 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 257 × (1 – 12.00%)
= 226

3 EBIT(1 – EITR) = Net income + Interest expense, after tax
= 29,760 + 226
= 29,986

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [29,986 – 621] ÷ 29,986
= 0.98

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 29,986 ÷ 52,687
= 56.91%

6 g = RR × ROIC
= 0.90 × 28.87%
= 26.00%

FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (2,000,520 × 20.04% – 27,243) ÷ (2,000,520 + 27,243)
= 18.43%

where:

Total capital, fair value0 = current fair value of NVIDIA Corp. debt and equity (US$ in millions)
FCFF0 = the last year NVIDIA Corp. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of NVIDIA Corp. capital

FCFF growth rate (g) forecast

NVIDIA Corp., H-model

Microsoft Excel
Year Value gt
1 g1 26.00%
2 g2 24.11%
3 g3 22.21%
4 g4 20.32%
5 and thereafter g5 18.43%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 26.00% + (18.43% – 26.00%) × (2 – 1) ÷ (5 – 1)
= 24.11%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 26.00% + (18.43% – 26.00%) × (3 – 1) ÷ (5 – 1)
= 22.21%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 26.00% + (18.43% – 26.00%) × (4 – 1) ÷ (5 – 1)
= 20.32%