Value Investing with Sven Carlin, Ph.D.|26. Juni
Nvidia Stock Intrinsic Value - P/E Just 30!
NVIDIA Stock: P/E of 30 and the Sustainability of the AI Boom
In this video, a value investor analyzes the intrinsic value of NVIDIA stock. The current price is above the calculated value, suggesting the stock is not cheap for a conservative investor.
Key Points on Current Situation
- Parabolic Earnings Growth: Earnings have exploded in recent years, driven by the AI boom.
- Falling P/E Ratio: Despite the stock's rise, the P/E ratio has fallen from 80 (2020) to 31.95, a classic sign that high expectations are being met.
- Business Performance: Revenue has nearly doubled, margins are rising, and free cash flow reached $48 billion in one quarter (annualized over $200 billion).
Future Expectations and Wall Street
- Analysts are extremely bullish (only 1 strong sell rating). The average upside to price targets is 43%.
- Expected earnings growth: 87%, 42%, then 24% over the next few years.
- For fair value calculation, the analyst assumes average growth of 25–30% through 2031.
Three Scenarios for Fair Value
| Scenario | Assumptions (Growth, P/E) | Fair Value (Current: ~$500) | Outcome |
|---|---|---|---|
| Base Case | 25% growth (5 yrs), then 10%; Terminal P/E: 20 | $275 | Stock is overvalued |
| Best Case | 30% growth, then 12–15%; Terminal P/E: 25 | ~50% discount (below ~$500) | Very cheap, annual return 17–18% |
| Margin of Safety | 25% for 2 yrs, then 5% (cycle+competition); Terminal P/E: 10 | $39 | Total loss risk (50% stock decline over 10 years) |
The Key Question: Sustainability of AI Investment Boom
- Cyclical Nature of Semiconductors: Historical charts show clear cycles with booms and busts (double ordering, overcapacity).
- Risk Factors: If major customers (hyperscalers) reduce their $1 trillion/year investments or competition intensifies, the cycle could turn.
- Not for Value Investors: The analyst emphasizes the stock is too reliant on future hopes and carries significant downside risk.
Conclusion: For a value investor, NVIDIA is currently too expensive as the fair value is below the price, and earnings are heavily dependent on the AI boom. The best-case scenario (bull case) is only realistic if the boom continues unabated.
