NVIDIA’s Soaring Stock and Potential 50% Upside: An FCF Perspective

Nvidia Stock

NVIDIA Inc. (NASDAQ:NVDA) is experiencing a surge in its stock, reaching over $514 per share in morning trading with a 4.6% increase. The company’s robust free cash flow (FCF) and FCF margins are cited as potential catalysts that could propel NVDA stock to over $736, representing a 50% increase. Let’s delve into the analysis behind this optimistic forecast.

NVIDIA’s Impressive Free Cash Flow Metrics

NVIDIA recently reported stellar Q3 financial results, with $7.042 billion in FCF generated on $18.12 billion in revenue. This resulted in a Q3 FCF margin of 38.86%, a testament to the company’s financial strength. The analysis suggests that NVIDIA’s FCF margins could potentially reach at least 40% in 2024.

Based on analysts’ revenue forecasts of $90.72 billion in 2024, the projection indicates a potential FCF of $36.3 billion for the year. Utilizing a 2.0% FCF yield metric to value NVDA stock, the implied market cap could rise to $1.8 trillion. This represents a substantial 50% increase from its current market cap of $1.21 trillion as of January 5, with a corresponding stock price of $736.46 per share.

Analysts’ Price Targets and Consensus

Analysts across various platforms have expressed bullish sentiments on NVDA stock, providing additional support for the optimistic outlook. Refinitiv’s survey of 47 analysts reveals an average price target of $636.67 per share, representing a 30% upside from the last recorded price.

Furthermore, analysts surveyed by AnaChart.com, tracking sell-side analysts’ stock recommendation performance, indicate an average price target of $596.14 per share, implying a potential upside of over 21% from the current level.

Strategies for Investors

The article suggests selling short out-of-the-money options as a strategic move for investors looking to capitalize on the positive outlook for NVDA. For example, selling short the $490 strike price that expires on January 26, 2024, is proposed. This move could yield immediate returns of 1.12%, and the strike price is 4.62% below the current market value.

Another option mentioned is the more conservative play of shorting the $480 puts, offering a premium of $4.00 with a high yield of 0.833%. This approach provides investors with an opportunity to generate extra income while expressing confidence in NVIDIA’s future performance.

In conclusion, the article emphasizes the potential for significant growth in NVIDIA stock over the upcoming year, supported by strong FCF metrics and positive analyst sentiments. Investors are encouraged to explore strategic options like selling short OTM puts to leverage the anticipated upward trajectory in NVDA’s value.

Featured Image: Unsplash

Please See Disclaimer