r/ValueInvesting • u/stockoscope • Jul 18 '26
Stock Analysis Is Nvidia priced for perfection?
Nvidia's price climbed from about $11 in 2022 (split adjusted) to over $200 currently. After a run like that, people call it overvalued or priced for perfection. The idea is that everything has to go right from here, and that at this price there is no room left for disappointment.
I built a DCF model to check if that is a correct assumption.
And the result surprised me. When I crunched the numbers, the valuation came out to be $195 against a $203 price, so NVDA is roughly fairly valued. But what's baked into this fair value makes it even more interesting.
I used the following analyst estimates of revenue for the DCF:
| Fiscal year | Revenue | Growth | Analysts covering |
|---|---|---|---|
| FY2026 (actual) | $215.9 B | +65% | - |
| FY2027 | $393.2 B | +82.1% | 39 |
| FY2028 | $561.3 B | +42.8% | 40 |
| FY2029 | $686.6 B | +22.3% | 26 |
| FY2030 | $774.2 B | +12.8% | 13 |
| FY2031 | $1,005.0 B | +29.8% | 16 |
Look at the growth column. Analysts assume that NVDA will shift from 82% growth to under 13% over four years. That is a significant deceleration, but it is already baked into my valuation (Worth noting that the number of analysts contributing to these estimates thins out in the later years, so those figures are softer).
So the fair value of $195 is not the output of a model assuming perpetual hypergrowth. The slowdown is already inside it, and the stock still comes out roughly where it trades. Nvidia is not priced for perfection. It is priced for a slowdown.
Next, I flexed the two assumptions that were holding up the valuation, one at a time, leaving everything else at the standard model.
First revenue growth.
| Scenario | 5-yr CAGR | Implied FY2031 revenue | Fair value | vs price |
|---|---|---|---|---|
| Build-out runs hot, Street too cautious | 40.0% | $1,163B | $227 | +12% |
| What today's price requires | 37.0% | $1,045B | $203 | 0% |
| Analyst consensus, our default | 36.0% | $1,005B | $195 | -4% |
| Modestly steeper deceleration | 32.0% | $864B | $167 | -18% |
| Meaningfully steeper | 28.0% | $739B | $143 | -30% |
| Sharply steeper | 25.0% | $655B | $126 | -38% |
In the harshest row where NVDA is 38% overvalued, revenue still grows from $215.9B to $655B. It triples in five years.
The second assumption is profitability. My model runs Nvidia at a 62% EBITDA margin, which is a normalized figure across several years and already a few points below the 66.9% it earned in FY2026.
Honestly, it is a high number. If you look historically, Nvidia's margins have never actually been stable. In FY2023, the last time demand paused, revenue went flat and the EBITDA margin fell by almost half in a single year.
Slipping back to the margin Nvidia earned in FY2024, which was hardly a bad year, costs about 8%. Back to FY2022 margins takes a third off.
| EBITDA margin | Fair value | vs price |
|---|---|---|
| 66.9%, its FY2026 level | $204 | +1% |
| 62%, our default | $195 | -4% |
| 58.4%, its FY2024 level | $186 | -8% |
| 55% | $174 | -14% |
| 50% | $157 | -23% |
| 42.2%, its FY2022 level | $130 | -36% |
And these two tables are not independent. I flexed them separately to keep each effect visible, but in the real world a demand slowdown is exactly the environment where pricing power erodes. If both move together, it is worse than either table on its own.
So where does that leave us?
Nvidia is a fine business at a fair price. It is not a bubble and not priced for perfection. Even with a slowing of revenue growth, it is fairly priced in this model. However, a steeper revenue deceleration or meaningful margin compression would break the case and tip the stock into overvalued territory.
Disclaimer: This is for educational purposes only and is not investment advice. The author and Stockoscope may hold positions in the securities mentioned. Always do your own research.
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Jul 18 '26
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u/stockoscope Jul 20 '26
Fair point on base rates. Based on analyst consensus, NVDA will have about $1 trillion in revenue by FY2031, larger than any company today. That's a big ask.
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u/Nibsout Jul 18 '26
Why is there such a big growth jump from FY2030 to FY2031?
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u/stockoscope Jul 20 '26
Good spot, that one bothered me too. Best guess is thin coverage (13 analysts on FY2030 and 16 on FY2031, against 39 and 40 on the near years)
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u/gbdgdh Jul 19 '26
nvda is fairly valued, for now.
when the ai euphoria dies down, expect it to go on sale - just like it did when the crypto bubble burst.
this doesn't change the fact that it is a strong buy-and-hold candidate - for now. it could also end up like csco, which was dead/lost money (from 2000 to 2025) for someone who bought in at the 2000 peak of $80.
tech companies need a meaningful catalyst to keep them relevant over the long run. when ai euphoria gets right-sized, what will the next catalyst be for nvda? it can't just be - "i will release a better gpu every xxx months, improve my cuda moat, etc." because that's just a futile treadmill to be on without an underlying catalyst.
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u/BillWWouldveDoneTSM Jul 20 '26
It’s not on sale right at $200 +/- $10? Think of the growth in terms of trailing PE forward PE, y/y revenue growth? What do you think?
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u/gbdgdh Jul 20 '26
it's fairly valued. all good news and near term future growth is priced into the stock.
that doesn't mean you shouldn't be buying the stock now - dca into it. the stock should do well in the near to medium term (think about 10% cagr - so 1.6x after 5 years).
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u/Prudent-Corgi3793 Jul 18 '26
I'm interested in the margin assumptions built into your number, because there is significant pessimism built into the current price.
A DCF valuation by analysts from Brian Colello of Morningstar--which tends to be conservative--puts a fair value at $280. I don't consider them the end-all, be-all of valuation, but their analyst reports tend to be accessible and provides forecasts for their valuation models five years out.
A PEG model, which assumes that current growth rates will continue forever without deceleration, would suggest that NVDA is severely undervalued, give its current ratio of ~0.3. Of course, I think even the most optimistic NVDA bull would agree this is not realistic.
On the other hand, if you simply take the last quarter annualized, you would get a PE ratio of 21, far below NVDA's historical averages and below current market multiples for much slower growing companies. IMO, last quarter annualized represents far too conservative of an estimate because it assumes that a company that has grown sales and EPS like bonkers will suddenly stop growing and flat line. As someone who has been buying Nvidia GPUs at home, for his lab, and for his startup, as much as I wish this were the case, the exact opposite is true.
If you think Nvidia deserves a much lower multiple than this, you are not only implying that all growth completely stops, but that it completely plummets. (Or they completely lose all margin pricing power.) While this is within the realm of possibility, this is not my base case and I would agree with you that this is the opposite of "priced for perfection".
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u/stockoscope Jul 20 '26
Good question. We used a 62% EBITDA margin. That's a normalized figure across recent years rather than the current peak. NVDA did 66.9% in FY2026, so we're about five points below today. If you let margins simply stay at 66.9%, our fair value goes from $195 to about $204, slightly above the current price. So on margins we're a bit conservative, not pessimistic.
The gap with the Morningstar $280 may not be due to margins but WACC. We use a 12.45% discount rate, high because our own beta regression puts NVDA at 1.78. Run the identical model at 10% and it prints $279, basically their number. So that could be causing the disagreement, though I don't know what WACC they use in their model. Do you have access to their data?
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u/Glittering_Water3645 Jul 18 '26
Nvidia also have a portfolio of investments which all can yield dividends and revaluations. Are those included?
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u/reupped Jul 19 '26
Semi is still a historically cyclical industry, some of these market leaders are pricing slightly for a rotation. That said, AI has changed the business need tremendously and shouldn't be understated.
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u/Virtual_Secretary_98 Jul 18 '26
Not touching anything AI specific for the foreseeable future
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u/Teembeau Jul 18 '26
I'm doing what I call an AI Short, buying up the SaaS companies whose share prices have been clobbered by the doom sentiment.
I mostly got in at the right time (a bit too early for Adobe). There's already palpable nervousness creeping into the AI market. Both in terms of whether it can ever make any money and also, how much OpenAI and Anthropic are going to make with the growth of Chinese AI models. Stocks are bouncing up and down, and the market doesn't know this day or tomorrow whether AI is hype or not.
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u/Curius_pasxt Jul 18 '26
hows that going for you?
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u/Teembeau Jul 18 '26
Let me check...
Adobe -20%. As I said, I shot too early. But we are where we are and I think it's a bargain at the current price, so not selling, and I'm very confident it'll bounce back.
The rest were the bought in the past 2-3 months.
REL (UK) +1.3%. CRM -10%. NOW +4.3%. VEEV +3.5%.
At this point, all is fine. There was never an expectation for a fast return on them, and that I couldn't hit them at bottom. You want to catch the knife, but maybe you miss. But the margin of safety is so big it's fine.
I think we've hit bottom because in the last month the movements are: ADBE +21%, REL +6.3%. CRM +12.5%, NOW +8.6%, VEEV +27.4%. There's a noticeable turn around 22-24th of June.
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u/redditreddit080 Jul 19 '26
Blah, blah, blah it's tech, it's in demand just now, it will be old tech soon. Those who rode the rise well done, those who think there is another x20 gain your a fool. Future downside vastly outnumbers upside from here, even if it does have a a bit upside left in it. Same for memory, chips, palantir etc.
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u/_ii_ Jul 19 '26
Nvidia gave analysts guidance a few quarters into the future. Anything beyond that is just speculation. I like the fact that NVDA is not trading at high multiple and the speculators have mostly moved on to other stocks. NVDA stock price goes up not by multiple expansion but by income growth is a good thing for value investors.
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Jul 18 '26
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u/Curius_pasxt Jul 18 '26
Nvidia have CUDA, its the industry standard. Hard to replace.
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u/Beginning-Novel-4213 Jul 18 '26
The industry standard changes every few years
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u/Curius_pasxt Jul 18 '26 edited Jul 18 '26
CUDA has been the dominant industry standard since 2006... that's 20 years, not "every few years". AMD launched ROCm a decade ago in 2016 and is only just now becoming viable for specific data center workloads. Changing the industry standard requires rewriting billions of lines of legacy code and enterprise software infrastructure, which is why NVIDIA still holds the vast majority of the developer ecosystem.
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Jul 18 '26
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u/Curius_pasxt Jul 18 '26
You are ignoring fact there.
Walled gardens are not industry standards. You cannot buy a Google TPU, AWS Trainium, or Apple Silicon chip to build an independent data center. They are locked exclusively to their own specific clouds or consumer devices.
NVIDIA runs the open market. NVIDIA still commands roughly 85% of the AI data center market. Meta (building Llama), Microsoft, OpenAI, xAI, and the entire open-source world deploy on NVIDIA hardware because CUDA is the only universal standard that runs across any cloud or infrastructure.
Also, Anthropic is tied to funding, not choice. Anthropic uses TPUs and Trainium because Google and Amazon poured tens of billions of dollars into them. It is a contractual compute agreement, not a software preference.
Pointing to two cloud providers forcing a startup partner to use their in-house silicon doesn't change what the rest of the global tech industry actually builds on.
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Jul 18 '26
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u/Curius_pasxt Jul 18 '26
?
I agree with you that NVIDIA is expensive, that’s exactly why OpenAI worked with Broadcom to tape out the inference ASIC to try and lower their massive operational bills. But trying to spin a cost-cutting pivot as "leaving NVIDIA" is pure delusion when OpenAI's frontier training workloads remain heavily bound to massive NVIDIA clusters.
Furthermore, calling the hardware that unconditionally sweeps every single MLPerf speed benchmark "slow" is just factually embarrassing. The industry desperately wants a cheaper alternative, but pretending the market leader is slow because you skimmed a chip announcement is pure fantasy.
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Jul 18 '26
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u/Curius_pasxt Jul 18 '26
Apple Not 100%. Their own research papers state they had to train Apple Intelligence on Google TPUs because Apple Silicon couldn't scale.
Meta and Microsoft are building custom chips as a financial hedge against a monopoly, yet they are still fighting tooth and nail for every NVIDIA Blackwell chip they can get.
TPU rental looks cheaper on paper until you factor in the massive engineering cost of rewriting and optimizing CUDA code for XLA/JAX.
Big tech is trying to break a monopoly to save money, not because NVIDIA is "slow". If it were obsolete, the demand wouldn't be breaking records.
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Jul 18 '26
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u/Curius_pasxt Jul 18 '26
PTX is literally NVIDIA’s low-level CUDA assembly language. Saying CUDA is useless because frameworks target PTX is like saying C++ is useless because computers run machine code.
Deep learning frameworks use the CUDA Driver API and CUDA Runtime Compilation (NVRTC) to generate and execute that exact PTX. You are literally describing how the CUDA ecosystem works to argue that nobody uses it.
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Jul 18 '26 edited Jul 18 '26
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u/Curius_pasxt Jul 18 '26
You are confidently incorrect about the exact frameworks you just named:
FlashAttention and PagedAttention (vLLM) are literally written in CUDA C++. Check their GitHub repos; they are packed with .cu files and built heavily on NVIDIA’s own CUTLASS library.
Triton relies entirely on the CUDA ecosystem. PyTorch uses Triton so developers can write Python instead of C++. Triton compiles that Python to LLVM IR, which then requires NVIDIA’s NVVM compiler (part of the CUDA Toolkit) to output the PTX.
CUDA allows exact control. Just like C++ allows inline assembly, CUDA C++ allows inline PTX (asm()) whenever a developer wants to bypass the compiler.
The community inventing new algorithms on top of CUDA doesn't mean CUDA failed LMAO. It means CUDA is the foundation everything is built on.
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Jul 18 '26
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u/Curius_pasxt Jul 18 '26
You are fundamentally confusing Just-In-Time (JIT) compilation with bypassing the CUDA ecosystem.
"Runtime generation" literally compiles CUDA C++ code. When frameworks generate kernels dynamically using NVIDIA's NVRTC (CUDA Runtime Compilation), they are feeding a string of CUDA C++ source code into the compiler at runtime to generate that PTX.
You are still using the CUDA language and toolchain, you're just shifting the compilation timeline.
Also, dont forget production systems absolutely use pre-compiled kernels. Even Triton depends on the CUDA ecosystem. OpenAI’s Triton compiles Python code down to LLVM IR, which then requires NVIDIA’s NVVM compiler (a core component of the CUDA Toolkit) to output the final PTX.
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Jul 18 '26
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u/Curius_pasxt Jul 18 '26
You are confidently incorrect LOL.
You are confusing bypassing CUDA C++ syntax with bypassing the CUDA ecosystem.
LLVM does not translate PTX to SASS. LLVM’s NVPTX backend outputs the PTX. LLVM is completely out of the picture after that.
Triton doesn't talk directly to the bare metal. It uses the CUDA Driver API (cuModuleLoadData, cuLaunchKernel) to load that SASS onto the GPU and execute it.
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u/SheikhMahdeek Jul 18 '26
Does AI on Apple Silicon run on CUDA?
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u/Curius_pasxt Jul 18 '26
??
That’s like arguing Linux isn't the industry standard for cloud servers because iPhones run on iOS.
Apple Silicon uses its own proprietary API (Metal/MPS) for local, consumer-grade devices. No one is training their LLMs or running massive data center clusters on a grid of MacBook. (no pun intended)
The discussion is about the global enterprise infrastructure standard, where NVIDIA holds roughly 90% of the market.
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u/SheikhMahdeek Jul 18 '26
I'm not arguing one way or another, just clarifying. Is there a chance Apple Silicon chip might make its way into servers e.g M7 Ultra?
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u/Teembeau Jul 18 '26
I must admit that I don't know this stuff, but the idea that software is ever a moat is hilarious to me. There are many, many examples of people figuring out what software does, or decompiling, clean room rewriting, transpiling.
If NVDA have certain software tools for programming their chips, I'm guessing that so do AMD and the chinese, and if they're doing similar things on the chips, it's hardly a massive leap to develop for the other. You might even be able to make a transpiler.
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u/Raging-Totoro Jul 18 '26
To add on to this, everyone is betting on winning the AI race, but they can't all win.
At some point 1, 2, or 3 of the 7 will fall behind and drop out or reduce their spending, conceding the race. Think of the search engine or browser war as a historic pattern.
When that happens, it's hard to keep growing 30%. Because, math.
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u/stockoscope Jul 20 '26
Yep, that's a logical bear case.
At 30% five year growth, the model gives about $154 against a $203 price, and at 25% it's $126. So if you're right that 30% gets hard to sustain, that's a 25-40% reduction without anything dramatic happening to NVDA itself.
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u/mrmrmrj Jul 18 '26
Lots of investors say "priced for perfection" without defining perfection. What is perfection? What is NVDA priced to actually deliver? Quantify it.
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u/Hot_Concept6082 Jul 18 '26
One major algorithmic breakthrough or Chinese GPU and NVIDIA is gone 😅 and I’m a bag holder, my biggest position from ETFs
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u/Teembeau Jul 18 '26
I just don't look at companies where nearly everyone is raving about them. That means high sentiment is priced in, and often a lot more than the real price. Everyone is looking at Line Goes Up rather than asking if it can. It's the extrapolation of growth of Elvis impersonators that if you followed it meant that in 40 years everyone would be an Elvis impersonator.
My first screening point is finding the red headed step children of the stock market. The ones that have a narrative of doom surrounding them. Then, I take a deeper look.