8 Incredible Facts All Nvidia Investors Need To Know (NASDAQ:NVDA) (2024)

8 Incredible Facts All Nvidia Investors Need To Know (NASDAQ:NVDA) (1)

It's been a terrific year for the magnificent 7, Nvidia Corporation (NASDAQ:NVDA) most of all.

I've rarely seen a giant company deliver such spectacular growth.

Nvidia Corporation has blown away all expectations for years now. The company seems to ride one mega trend wave in tech to another. From strength to strength. A growth story for the ages that seems to just mint cash and generate incredible returns for investors.

But Nvidia Corporation is not, despite this year's incredible results, God's own company, though it's pretty close;)

Let me share the latest fundamentals on one of the greatest growth stocks in history.

Here are eight amazing facts that you need to see to believe. These facts highlight the promise and potential perils of investing in the King of the Magnificent Seven today.

Fact 1: Short-Term Growth That Needs To Be Seen To Be Believed

Here is Nvidia's short-term growth consensus after the company beat expectations again and raised guidance.

Metric 2023 Growth Consensus 2024 Growth Consensus 2025 Growth Consensus

3-Year Growth Consensus

Sales 121% 53% 17% 296%
Earnings 268% 66% 17% 615%
Operating Cash Flow 387% 73% 17% 887%
Free Cash Flow 596% 67% 20% 1295%
EBITDA 386% 61% 15% 800%
EBIT 542% 64% 15% 1108%

(Source: FAST Graphs, FactSet.)

Earnings growth expectations are up about 40% in the last six months.

Let me say that again. In two quarters, NVDA's growth estimates for 2023 are up from 230% to almost 270%.

40% growth is something most companies would kill for, and that's merely the increase for NVDA.

And as incredible as 270% growth in earnings is, it can't hold a candle to 7X growth in free cash flow.

Remember that free cash flow is the money left over after running the business and investing to maintain the business today and grow it tomorrow.

Warren Buffett's famous "owner earnings" are the ultimate source of intrinsic value.

And from 2023 to 2025, analysts expect NVDA's free cash flow to grow by 1300%, a 14X increase.

Heck, sales are expected to quadruple.

And we're not talking about some start-up here. NVDA's 2022 sales were $27 billion; by 2025, they are expected to hit $107 billion.

But as incredible as these short-term forecasts have become, they pale compared to the medium-term forecasts.

Fact 2: Medium-Term Growth That Makes Nvidia A Great Buy Today

This growth is absolutely incredible.

Year Sales Free Cash Flow EBITDA EBIT (Operating Income) Net Income
2022 $26,969 $4,176 $10,863 $9,350 $4,825
2023 $55,885 $23,056 $32,006 $32,361 $25,144
2024 $88,282 $41,749 $52,446 $54,470 $41,193
2025 $106,580 $52,702 $62,709 $65,541 $49,678
2026 $117,989 NA NA $73,507 $58,747
2027 $140,117 NA NA $89,594 $75,235
2028 $174,451 NA NA $115,310 $98,680
Annualized Growth 2022-2028 36.50% 132.82% 79.39% 52.00% 65.37%
Cumulative 2023-2028 $683,304 $117,507 $147,161 $430,783 $348,677

(Source: FactSet Research Terminal.)

It's not just short-lived growth like so many pandemic booms, but at least for now, it appears sustainable.

Net profits rising from an impressive $5 billion in 2022 to $100 billion by 2028? That's 65% annual growth in net profits.

That's something we've only ever seen with a handful of companies such as Apple after the iPhone changed the world forever.

Do you know what else is so amazing? The 2028 sales estimate is up $34 billion in the last three months.

$143 billion in 2028 sales would have been incredible enough but it's now up to $175 billion.

How can earnings grow at 65% per year for six years? How can any company this big boost its bottom line 24X in just a few years?

Fact 3: Economies Of Scale That Help Boost Margins To Spectacular Levels

Joel Greenblatt, one of the greatest investors in history, delivering 40% annual returns for 21 years at Gotham Capital, considered return on capital the gold standard of profitability and a sign of quality.

  • pre-tax profit/the cost of running the business.

NVDA is now at 406% returns on capital, in the top 5% of chip makers.

The growth rate in Nvidia's margins is expected to be the stuff growth stock dreams are made of.

Year FCF Margin EBITDA Margin EBIT (Operating) Margin Net Margin
2022 15.5% 40.3% 34.7% 17.9%
2023 41.3% 57.3% 57.9% 45.0%
2024 47.3% 59.4% 61.7% 46.7%
2025 49.4% 58.8% 61.5% 46.6%
2026 NA NA 62.3% 49.8%
2027 NA NA 63.9% 53.7%
2028 NA NA 66.1% 56.6%
Annualized Growth 2022-2027 47.26% 13.96% 11.35% 21.15%

(Source: FactSet Research Terminal.)

Those aren't the growth rates of fundamentals; that's the growth rate of the margins.

Free cash flow margins of 50% by 2025, and net margins be almost 60% by 2028. That implies that by 2028, Nvidia, if it meets growth expectations, could be commanding 60% free cash flow margins by 2028.

How impressive would that be if achieved?

Right now, I know of just one company in the world commanding 60% free cash flow margins: Visa (V).

Sixty cents of every dollar in sales drops straight to the bottom line. A business so lucrative that governments worldwide (mainly in Europe) have been suing the company and trying to set up competitors.

  • See Fact 7, the risk profile, for more.

OK, those are some jaw-dropping forecasts, but given that Microsoft (MSFT) and every other tech giant is racing to build its own AI chips, why should we believe any chipmaker can sustain even today's incredible margins, much less grow them in the future?

For one thing, because NVDA doesn't have its own fabs, its capex costs are very low. It's a capital-light business model, so analysts think that NVDA will ramp up its buybacks to $14 billion per year by 2025.

$33 billion in buybacks through 2025, $101 billion in cash on the balance sheet, and $75 billion in net cash.

NVDA is always investing in the latest chip technology, spending more than anyone else as a percentage of sales.

And given the growth rate in sales, that's some very impressive R&D spending.

NVDA's R&D spend is now at $8.2 billion and is expected to hit $17 billion by 2028.

OK, but didn't Intel spend a ton on R&D? Or International Business Machines (IBM), with its over 100,000 patents and all that Watson AI hype? Those companies have been struggling for years to prove R&D spending on their own.

NVDA's cash returns on invested capital usually run 20%, indicating extremely productive growth spending.

They are approaching 50% today, and analysts think they might set new records in the next few years.

Fact 4: Long-Term Growth That Makes Nvidia A Must-Own AI Stock

12-months ago, NVDA's growth outlook was 18%. Pre-earnings it was 35%. Now, its pushing 38%, having doubled in a year.

They have tripled over four years. Normally growth estimates are stable or trend lower, but NVDA has been an exception.

Nvidia Historical Returns since 1999

Nvidia has been growing similarly since its 1999 IPO for 24 years.

OK, but that's doubling earnings every two years, which can't be sustained for long, right?

  • 32X growth in a decade.

These growth rates aren't in perpetuity since it would represent nearly 1000X growth over 20 years.

But for now, given the best available data and the combined models of all 54 analysts covering NVDA on Wall Street, this is the growth outlook.

What is the range of long-term growth forecasts? 4% to 128%, which is very wide (see risk profile section).

NVDA hasn't missed earnings estimates since 2010.

It seems management's guidance is good. Very good. How about two year forecasts?

50% of the time, NVDA beats 2-year forecasts by at least 20%, and just 8% of the time, it misses by at least 20%.

And that's the 20-year track record. I think it's fair to say those 54 analysts know this company well, better than anyone other than management.

Fact 6: Nvidia's Epic Rally Is Likely Ending...For Now

The good news is that NVDA is still a potentially very good long-term buy.

  • $646.89 fair value
  • $478.21 current price
  • 26% discount for 95% quality hyper-growth Ultra SWAN.

You might think 44X trailing earnings is a dangerous valuation. NVDA is growing so quickly that if it grows as expected (and it usually grows faster) and maintains its 34X 20-year average market-determined fair value P/E, you will earn 70% within two years if you buy the stock today.

  • 30X cash-adjusted earnings for a company growing at 38% is growth at a reasonable price.

The bad news? Getting to that potential 70% return is likely to require some impressive and potentially terrifying volatility.

Going into earnings, NVDA's growth estimates for 2023 and 2024 were rising by the day.

The company beat estimates and raised guidance.

So, I expected estimates to rise even higher after earnings. They fell from $15 to $13 this year to $19.7 for 2024, down from $23.

You might have noticed how NVDA didn't explode higher after earnings. That's because the company has been blowing out expectations so consistently that everyone, including analysts and investors, has become accustomed to it.

So, the whisper number is much harder to reach, even for mighty NVDA. And that brings me to fact. One that is crucial to anyone owning this stock.

Fact 7: Volatility That Must Be Seen To Be Believed...And Survived To Profit From This Hyper Growth

NVDA has a history of downright crashes and not just corrections or bear markets.

8 Incredible Facts All Nvidia Investors Need To Know (NASDAQ:NVDA) (16)

Even the recent 10% market correction was a rather unpleasant surprise for many NVDA longs.

NVDA has almost quadrupled this year.

It's also fallen 15% or more three times.

This is a double-edged sword of owning a stock with a beta of 2, hyper-volatility that makes for wild rides.

I can nearly guarantee that NVDA will fall 60% from record highs at some point. That's pretty much the average bear market for this stock.

If you can't stomach this volatility, you must not buy NVDA.

Fact 8: Risk Profile: Why Nvidia Isn't Right For Everyone

There are no risk-free companies, and no company is right for everyone. You have to be comfortable with the fundamental risk profile.

Risk Profile Summary

We assign Nvidia with a Morningstar Uncertainty Rating of Very High. In our view, Nvidia's valuation will be tied to its ability to grow within the data center and AI sectors, for better or worse. Nvidia is an industry leader in GPUs used in AI model training, while carving out a good portion of demand for chips used in AI inference workloads (which involves running a model to make a prediction or output).

We see a host of tech leaders vying for Nvidia's leading AI position. We think it is inevitable that leading hyperscale vendors, such as Amazon's AWS, Microsoft, Google, and Meta Platforms will seek to reduce their reliance on Nvidia and diversify their semiconductor and software supplier base, including the development of in-house solutions. Google's TPUs and Amazon's Trainium and Inferentia chips were designed with AI workloads in mind, while Microsoft and Meta have announced semiconductor design plans. Among existing semis vendors, AMD is quickly expanding its GPU lineup to serve these cloud leaders. Intel also has AI accelerator products today and will likely remain focused on this opportunity.

Our uncertainty rating is based on the uncertainty around this market. Nvidia dominates AI today and the sky is the limit for the company's profitability if it can maintain this lead over the next decade. However, any semblance of the successful development of alternatives could meaningfully limit Nvidia's upside.

Outside of the data center, Nvidia's gaming business often faces boom-or-bust cycles along with PC demand and, more recently, the sharp rise and fall of cryptocurrency mining. Nvidia also has invested heavily in autonomous driving but again squares off against many other chipmakers (and automakers) for a piece of this pie with little guarantee of success." - Morningstar (emphasis added).

Nvidia's Risk Profile Includes

  • Economic cyclicality risk: very high; earnings can fall as much as 82% in a severe recession
  • M&A execution risk: brilliant CEO, but no one bats 1.000
  • disruption risk: 50% free cash flow margins are going to attract an ocean of rivals
  • regulatory risk: China tech ban could be a significant hit to future growth
  • Key man risk: CEO is 60 years old and won't be around forever
  • currency risk

How do we quantify, monitor, and track such a complex risk profile? By doing what big institutions do.

Long-Term Risk Management Analysis: How Large Institutions Measure Total Risk Management

DK uses S&P Global's global long-term risk-management ratings for our risk rating.

  • S&P has spent over 20 years perfecting its risk model
  • which is based on over 30 major risk categories, over 130 subcategories, and 1,000 individual metrics
  • 50% of metrics are industry-specific
  • This risk rating has been included in every credit rating for decades.

The DK risk rating is based on the global percentile of a company's risk management compared to 8,000 S&P-rated companies covering 90% of the world's market cap.

Nvidia scores 91st Percentile On Global Long-Term Risk Management.

S&P's risk management scores factor in things like:

  • supply chain management
  • crisis management
  • cyber-security
  • privacy protection
  • efficiency
  • R&D efficiency
  • innovation management
  • labor relations
  • talent retention
  • worker training/skills improvement
  • occupational health & safety
  • customer relationship management
  • business ethics
  • climate strategy adaptation
  • sustainable agricultural practices
  • corporate governance
  • brand management
  • interest rate risk management.

NVDA's Long-Term Risk Management Is The 79th Best In The Master List, 84th Percentile In The Master List

Classification S&P LT Risk-Management Global Percentile

Risk-Management Interpretation

Risk-Management Rating

BTI, ILMN, SIEGY, SPGI, WM, CI, CSCO, WMB, SAP, CL 100 Exceptional (Top 80 companies in the world) Very Low Risk
Nvidia 91


Very Low Risk

Strong ESG Stocks 86

Very Good

Very Low Risk

Foreign Dividend Stocks 77

Good, Bordering On Very Good

Low Risk

Ultra SWANs 74 Good Low Risk
Dividend Aristocrats 67 Above-Average (Bordering On Good) Low Risk
Low Volatility Stocks 65 Above-Average Low Risk
Master List average 61 Above-Average Low Risk
Dividend Kings 60 Above-Average Low Risk
Hyper-Growth stocks 59 Average, Bordering On Above-Average Medium Risk
Dividend Champions 55 Average Medium Risk
Monthly Dividend Stocks 41 Average Medium Risk

(Source: DK Research Terminal.)

NVDA's risk-management consensus is in the top 14% of the world's best blue chips and is similar to:

  • Intuit: Ultra SWAN
  • Bank of Nova Scotia: Ultra SWAN
  • Medtronic: Ultra SWAN dividend aristocrat
  • Alphabet: Ultra SWAN
  • Caterpillar: Ultra SWAN dividend aristocrat.

The bottom line is that all companies have risks, and NVDA is exceptional at managing theirs, according to S&P.

How We Monitor Nvidia's Risk Profile

  • 54 analysts
  • two credit rating agencies
  • 56 experts who collectively know this business better than anyone other than management.

When the facts change, I change my mind. What do you do, sir?" - John Maynard Keynes.

There are no sacred cows here. Wherever the fundamentals lead, we always follow. That's the essence of disciplined financial science, the math behind retiring rich and staying rich in retirement.

Bottom Line: Nvidia Is A Must Own AI Stock...If You Understand Its Risks

NVDA is a marvel to behold.

A company that has been on the cutting edge of GPU chips since its founding and has been the big chip winner in so many mega-trends.

  • data centers
  • gaming
  • crypto
  • Internet of Things
  • now AI.

This article highlights just a handful of the most important, amazing facts about how Nvidia is helping to create the future of technology and could keep making investors rich for years or even decades.

In the short-term, it might struggle as it appears that Wall Street has become so used to earnings beats that nothing short of a blockbuster smashing result like we saw two quarters ago (50% beat and 30% stock price jump) can excite investors today.

However, suppose you are comfortable with the risk profile and the hyper-volatility of a company that can quadruple in a year while falling into three 15% corrections. In that case, Nvidia Corporation remains a potentially very strong buy today.


8 Incredible Facts All Nvidia Investors Need To Know (NASDAQ:NVDA) (18)

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Greetings, fellow enthusiasts and investors in the world of technology and finance. As someone deeply immersed in the dynamic realm of high-tech stocks and financial analysis, I'm excited to delve into the fascinating details of Nvidia Corporation's exceptional journey and the compelling reasons why it stands out as one of the most intriguing growth stocks in recent history.

Firstly, let's address the evidence that substantiates Nvidia's remarkable trajectory. The provided data reveals an impressive track record and a robust growth forecast, demonstrating the company's prowess in the market. From short-term projections boasting triple-digit percentage growth in various financial metrics to medium-term estimates indicating sustained and substantial expansion, Nvidia's performance paints a vivid picture of a company riding the waves of technological trends with unparalleled success.

Let's break down the information into key concepts highlighted in the article:

  1. Short-Term Growth (Fact 1):

    • Sales, earnings, operating cash flow, and free cash flow are all expected to experience significant growth from 2023 to 2025.
    • The short-term growth estimates have surged, with 270% growth in earnings and a staggering 14X increase in free cash flow from 2023 to 2025.
  2. Medium-Term Growth (Fact 2):

    • The medium-term growth forecast paints a picture of sustained expansion, with net profits expected to grow from $5 billion in 2022 to $100 billion by 2028.
    • Sales estimates for 2028 have been revised upward to $175 billion.
  3. Economies of Scale (Fact 3):

    • Nvidia's returns on capital are at 406%, placing it in the top 5% of chip makers.
    • Growth in margins is anticipated, with free cash flow margins projected to reach 50% by 2025 and net margins approaching 60% by 2028.
  4. Long-Term Growth (Fact 4, Fact 6):

    • Nvidia has consistently defied growth expectations, with a historical track record of doubling earnings every two years for 24 years.
    • Long-term growth estimates range from 4% to 128%, with a current growth outlook of 38%.
  5. Volatility (Fact 7):

    • Nvidia is acknowledged for its historic volatility, having quadrupled in a year but also experienced multiple corrections.
    • The article warns of potential future volatility and emphasizes the need for investors to withstand market fluctuations.
  6. Risk Profile (Fact 8):

    • Morningstar assigns Nvidia a Very High Uncertainty Rating, tying its valuation to growth within the data center and AI sectors.
    • Various risks include economic cyclicality, M&A execution, disruption risk, regulatory risk, key man risk, and currency risk.
  7. Long-Term Risk Management (Fact 8):

    • S&P Global's risk model rates Nvidia's long-term risk management in the 91st percentile globally, categorizing it as exceptional and very low risk.

In conclusion, Nvidia's compelling growth story, backed by robust evidence and comprehensive risk management, positions it as a standout player in the AI and technology space. However, potential investors are cautioned about the associated volatility and the need for a thorough understanding of the risk profile. As we navigate the future of technology, Nvidia stands as a captivating force to watch in the world of finance and innovation.

8 Incredible Facts All Nvidia Investors Need To Know (NASDAQ:NVDA) (2024)


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