Nvidia Stock Intrinsic Value - P/E Just 30!

Sven provides an update on Nvidia's intrinsic value, examining whether the current stock price is justified by its massive growth. He notes that while the business has performed spectacularly—nearly doubling revenues and generating $48 billion in free cash flow in a single quarter—the stock's performance hasn't always matched the business growth because high expectations were already priced in. Sven highlights that the P/E ratio has actually compressed from 80 to around 32, as the expected growth finally materialized.

Sven presents three distinct valuation scenarios using a 10% discount rate:

1. Base Case: 25% growth for 5 years, then 10% growth. This results in an intrinsic value of $275, suggesting the stock is currently overvalued.

2. Bullish Case: Continued 30% growth and a terminal P/E of 25. In this exuberant scenario, Nvidia is seen as cheap, potentially offering a 17-18% annual return.

3. Bearish/Cyclical Case: Following the historical patterns of the semiconductor industry, growth could drop to 5% after two years. With a terminal P/E of 10, the intrinsic value could plummet to $39, leading to a 50% loss over a decade.

Ultimately, Sven concludes that Nvidia is not a stock for traditional value investors because it requires betting on a continued 'AI boom' and ignoring historical cyclicality. He emphasizes that value investing involves waiting for all factors to align rather than chasing momentum.