NVIDA Is Blasting Off and Its Powerful FCF Could Push NVDA 50% Higher to Over $736

Nvidia Inc (NVDA) stock is blasting off again today, up 4.6% to over $514 per share in morning trading. Moreover, the graphics and networking solutions company's powerful free cash flow (FCF) and FCF margins could still push NVDA stock over $736, up 50%. 

I discussed this prospect in my Dec. 22, 2023, Barchart article, “Nvidia Is Still Deeply Undervalued - Short OTM Puts for Extra Income.” At the time, the stock was $492.83 per share, and I wrote that NVDA stock was worth $734.

This was based on the company's powerful free cash flow (FCF) margins. This article will update my analysis and show why NVDA stock could rise another 50% to $735.87 per share.

Nvidia's Massive Free Cash Flow

Nvidia had a blowout Q3 financial result, as I wrote in my Nov. 26 article, “Nvidia's Blowout Quarterly Results Imply NVDA Stock Could Be Worth Over $700 Per Share.”

For example, it generated $7.042 billion in FCF on $18.12 billion in revenue. That works out to a Q3 FCF margin of 38.86%. I suspect that its FCF margins could rise to at least 40% in 2024.

Based on analysts' revenue forecasts of $90.72 billion in 2024 revenue, that implies that it could make $36.3 billion in FCF this year.

Using a 2.0% FCF yield metric to value NVDA stock implies its market cap could rise to $1.8 trillion (i.e., $36.3b/0.02 = $1,815 billion). That is 50% higher than its present market cap of $1.21 trillion as of Jan. 5.

This means that NVDA stock could rise 50% from its Jan 5 price of $490.97 to 736.46 per share.

Where Analysts Stand with NVDA Stock

Other analysts also have significantly higher price targets. For example, a survey by Refinitiv of 47 analysts (published by Yahoo! Finance) shows that their average price target is $636.67 per share. That is 30% over the price from last Friday.

Moreover, analysts surveyed by AnaChart.com, an alternative site that tracks sell-side analysts' stock recommendation performance, show that 41 analysts have an average price target of $596.14 per share. That is a potential upside of over 21% from here.

Sell Short OTM Puts for Extra Income

One way to play this is to sell short out-of-the-money put options in nearby expiration periods. For example, in my last Barchart article, I recommended selling short the $460 strike price puts that expire this Friday on Jan. 12. 

At the time the premium received $4.70, for a 1.02% yield (i.e., $4.70/$460.00). The strike price was 6.48% below the spot price at the time, i.e., it was out-of-the-money (OTM). 

Today, those puts are trading for just 12 cents, so this has been a very successful trade over the past 3 weeks. It makes sense to roll this trade over. The investor can do this by entering an order to “Buy to Close” the short sale of the $460 puts expiring Jan. 12.

Then they can sell short the $490 strike price puts that expire on Jan. 26, 2024. They trade for $5.50 on the bid side, giving the short seller an immediate yield of 1.12%. Moreover, the strike price is 4.62% below today's price.

NVDA Puts expiring Jan. 26, 2026 - Barchart - As of Jan. 8, 2024

A more conservative play is to short the $480 puts, which have a $4.00 premium. That is still a high yield of 0.833%.

The bottom line is that investors in NVDA can expect to see Nvidia stock rise significantly higher over the coming year. They can make extra income by selling short OTM puts in nearby expiration periods.

More Stock Market News from Barchart

On the date of publication, Mark R. Hake, CFA did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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