To The Moon

$NVIDIA(NVDA)$

We've just come off the worst week for the S&P 500 in 2025 so far, with markets seeing red across the board. One of the biggest standouts this week has been Nvidia, which is down 10%. Year to date, market performance has been mixed—some companies are down double digits, while others are solidly in the green. However, Nvidia has dropped 16% YTD, a significant decline considering its strong performance in 2024. While the stock remains up about 22% over the past year, it’s clear that in 2025, Nvidia has been struggling.

This raises an important question: Is Nvidia now shaping up to be the "buy of the decade"? The stock is currently trading in the mid-to-lower end of its 52-week range, with a strong buy rating from Wall Street and Seeking Alpha. Keep in mind, Nvidia has massively outperformed the S&P 500 over the past decade, soaring an astonishing 19,758%.

Another key metric to consider is its forward P/E ratio, which currently sits just above 25.5. This appears quite cheap compared to its historical averages—something we’ll explore further.

Institutional Activity

Institutional investors remain heavily involved, holding 65% of Nvidia's shares. Over the past year, institutions sold $68 billion worth of stock, but they purchased significantly more—$390 billion. In the most recent quarter alone, institutions bought nearly three times as much as they sold, signaling clear bullish sentiment.

Looking at Nvidia's valuation, the current forward P/E of 25 is well below its five-year average of 42.9, which suggests an undervaluation. This alone makes it a compelling opportunity for deeper analysis.

Valuation & Growth Potential

Examining Nvidia’s fair price model over the past five years, we see a steady increase—something investors want to see in a growing company. However, there’s a growing gap between its market price and its fair value, reinforcing the idea of undervaluation.

When comparing Nvidia to the broader sector (which has a forward P/E of 22.6), investors are currently paying an 11% premium. Given Nvidia’s growth trajectory, one could argue it deserves an even higher premium. Notably, the stock is trading 48% below its own five-year average valuation.

Revenue & Earnings Growth

A major driver of Nvidia’s revenue growth has been its data center segment, which has consistently increased quarter over quarter. In its most recent earnings report, Nvidia generated nearly $36 billion from this segment—almost double the same quarter in FY24.

Other income streams have grown as well, but data centers remain the dominant force. In the most recent quarter alone, Nvidia's data center revenue grew 16% sequentially, contributing to an overall 12% quarterly revenue increase.

Profitability & AI Demand

Nvidia's net income margin is an impressive 56%, making it one of the most profitable companies in the sector. Its profits surged 80% in the latest quarter, reflecting continued strong demand for AI-related hardware and software.

Looking at Nvidia’s long-term financial trends:

• Revenue has more than doubled in just one year

• Operating margins have expanded from 41% (2021) to 67% today

• Free cash flow surged from $27 billion in 2024 to $61 billion

Again, the data center business is the main driver, having nearly tripled year-over-year and grown 108% annually over the last five years.

AI Market Expansion

The AI boom is accelerating, and major tech players are ramping up their spending. Nvidia stands to benefit from this trend, with key players increasing their capital expenditure (CapEx) budgets:

• Meta: $60 billion

• Alphabet (Google): $75 billion

• Microsoft: $80 billion

• Amazon: $100 billion

These companies have made it clear that AI is a once-in-a-lifetime opportunity, and Nvidia is positioned as a primary beneficiary.

Return on Capital & Future Growth

Nvidia’s Return on Invested Capital (ROIC) is another standout metric. While the semiconductor industry typically sees ROIC around 12%, Nvidia hit 61% in FY24 and 90% in its most recent reports—one of the highest we’ve seen.

Looking ahead:

• Revenue growth over the last year: 114%

• Expected revenue growth over the next 12 months: 60%

• EPS growth forecast: 35% (compared to sector average of 15%)

Nvidia has several avenues to further increase its revenue. While we won’t cover them in detail in this episode, sectors like robotics and the automotive industry will continue to drive growth. Additionally, the company is improving profitability through increased operational efficiencies.

Profitability & Margins

• Gross margin: 75%, significantly above the sector average of 50% and Nvidia’s five-year average of 65%

• Net margin: 56%, far exceeding the sector average of 4% and well above its five-year average of 33%

Not only is Nvidia growing revenue at a much faster pace than in the past five years, but it’s also expanding both gross and net margins while trading at a valuation well below historical levels.

Strong Cash Flow & Financial Health

• Cash generated from operations: $65 billion over the last 12 months, compared to an average of $15.5 billion over the past five years

• Well above the sector average: $107 million

• Free cash flow margin: 47%, significantly higher than the 5% minimum expected for semiconductor companies

Looking at Nvidia’s financial trends, margins have strengthened considerably, with operating margins rising from 18% in 2016 to 62% today. This makes Nvidia a free cash flow powerhouse.

Balance Sheet Strength

• Net debt-to-EBITDA ratio: 0, well below the semiconductor industry threshold of 1.5

• Cash on hand: More than enough to cover all existing liabilities, meaning Nvidia could pay off all its debt in less than a day

Tariff Concerns & Market Sentiment

One factor weighing on Nvidia’s stock is tariffs, which contributed to a 9% decline at the start of last week—similar to the broader market, but with Nvidia falling even further. There is concern that ongoing tariffs could impact the company in the long run.

However, Forbes has suggested that these fears might be overblown. According to their analysis:

• The initial tariffs are unlikely to have a material impact on Nvidia since most of its chips are manufactured by TSMC in Taiwan.

• Some systems and computers using Nvidia’s chips are assembled in other regions, including Mexico, which could see some impact, but Nvidia’s core high-margin GPU business is expected to remain largely unaffected.

• Nvidia generates 47% of its sales from the U.S., meaning the overall margin impact is expected to be minimal.

• TSMC is investing $100 billion in new U.S. chip fabrication plants, which will help mitigate concerns over supply chain risks and tariffs.

Export Restrictions & China Concerns

Last week, Nvidia’s unofficial exports to China came under scrutiny after authorities in Singapore arrested individuals accused of smuggling silicon chips and misrepresenting the final destination of U.S.-manufactured products.

• Singapore accounted for 18% of Nvidia’s total FY25 revenue, but this figure is based on customer billing location rather than where products were actually shipped.

• In reality, less than 2% of Nvidia’s total sales involve direct shipments to China, so the impact appears minimal for now.

Market Sentiment & Analyst Outlook

Despite these concerns, only one analyst has downgraded Nvidia to a hold, citing a less favorable risk-to-reward profile and the presence of better short-term opportunities in the market.

However, broader market sentiment has shifted to extreme fear, contributing to Nvidia’s sharp decline along with the overall market. Given that this has been the worst week for the S&P 500 in 2025, many companies are seeing significant drops in share prices.

Nvidia is no exception to recent market trends. Looking at the S&P 500’s forward valuation, while many stocks are still in the red due to declining prices, we are starting to see more green, indicating that valuations are becoming increasingly attractive.

Based on current data, Nvidia is trading at a forward P/E ratio of approximately 20, while another valuation model suggests 25. The key takeaway is that as Nvidia’s price continues to decline, the stock becomes even more attractive from a valuation standpoint.

Weekly Market Insights & Undervalued Stocks

Before diving deeper into valuation, a quick reminder: We publish a free weekly article every Monday covering severely undervalued stocks and market trends from the past week. A new edition is dropping tomorrow, so sign up below to receive it directly in your inbox. This includes:

• A curated list of undervalued stocks for March, including potential upside projections from Wall Street analysts.

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Nvidia’s Valuation Analysis

Now, let's break down Nvidia’s intrinsic valuation:

• Our discounted cash flow (DCF) model estimates Nvidia’s intrinsic value at $162, indicating a 45% upside.

• This calculation is based on Nvidia’s historical free cash flow (FCF) growth: 153% CAGR over the last five years 104% CAGR over the last ten years A 20% estimated future growth rate

Using a 15% growth rate, the intrinsic value drops to $115, which still represents a 3% upside from current levels. This suggests that buying Nvidia around $112–$115 already accounts for a 15% FCF growth assumption.

For those with a more optimistic outlook of 25% growth, the valuation jumps to $227, representing a 103% upside, more than doubling Nvidia’s current stock price.

Margin of Safety & Investment Criteria

We generally apply a 10% margin of safety (MOS) and execute trades if the stock meets our three golden criteria:

1. Strong competitive moat

2. Robust financial metrics

3. Positive forward-looking data

Based on these factors:

• $146 would be a fair price with a 10% MOS

• $114 represents a 30% MOS, providing a highly conservative entry point

Wall Street Sentiment & Future Outlook

Analysts remain bullish on Nvidia, with Wall Street’s 12-month price target at $177, reflecting a 58% upside.

That said, we’d love to hear your thoughts:

1. Do you believe a 20% growth rate is reasonable for Nvidia?

2. Is a 30% margin of safety sufficient for your investment approach?

Let us know your take, and feel free to explore different growth assumptions using the DCF model available in the pinned comment below.

Conclusion

Even after years of exponential growth, Nvidia continues to show massive potential. With strong institutional support, robust financials, and increasing AI demand, the company is poised to benefit significantly in the coming years. While the stock currently trades at a High premium to the sector, its long-term valuation suggests a compelling buying opportunity.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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