A Look At Our $208 Valuation For Nvidia

by Trefis Team
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Nvidia (NASDAQ:NVDA) has seen solid growth in the recent quarters, led by its GPUs (graphics processing units), and Tegra Processors. The GPU segment is  benefiting from the gaming business, which saw a solid 77% revenue growth (y-o-y) in Q1. Nvidia’s gaming platform has been growing at a strong pace since the last few years. The company has been a pioneer in introducing new advancements and catering to the high-end GPU market. We believe this trend will likely continue in the near term. The company recently announced its new product – NVIDIA RTX – aimed at high-end graphics, and it should further aid the segment growth. We have created an interactive dashboard analysis which you can use to arrive at your own price estimate for the company by modifying the various drivers.

GPUs Will Likely Grow At A Strong Pace

GPU revenue has jumped significantly from $3.8 billion in 2014 to over $8 billion in 2017. This accelerated ramp-up can be attributed to Nvidia’s expansion into data centers. GPU-accelerated datacenters are expanding in both High Performance Computing (HPC) and the cloud. Nvidia is a leader in artificial intelligence and deep learning and has developed a range of products for the same. These products have gained popularity and the company is now engaged with nearly 3,500 organizations in the development of the deep learning technology. In Q1 2018, the company posted a stellar 71% growth in its datacenters business, led by continued growth in its CUDA platform, and increased acceptance of its Volta architecture. We expect this trend to continue going forward, and estimate the GPU revenues to grow north of $10 billion in 2018, and over $15 billion in the long run.

Looking at the Tegra Processors segment, the revenues grew 33% in Q1, and we expect 25% growth for the full year. The automotive segment is the fastest growing sub-segment of Nvidia’s Tegra business and offers better margins when compared to devices. The company’s automotive platforms remain on a sharp upward trajectory with AI (artificial intelligence) to be introduced in several vehicle lineups. The company is currently working with 320 organizations, including automakers, to introduce AI into driving. Apart from automotive, the segment is also seeing growth in its gaming business. The company’s SHIELD includes a family of devices designed to harness the power of mobile-cloud to revolutionize gaming.

While the company appears to be on a good run with solid growth across its segments, we believe that it is already priced in by the Street. The stock price has rallied around 70% over the last 12 months. Our $208 price estimate for Nvidia is based on $6.14 expected EPS in 2018 and a price to earnings multiple of a little under 34x. Our revenue forecast of $12.0 billion represents year-on-year growth of around 24%. Of the total expected revenues in 2018, we estimate $10.1 billion in the GPU segment, and Tegra Processors making up for the rest. Our price estimate of $208 for Nvidia is at around a 15% discount to the current market price.

 

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