So shares of Nvidia skyrocketed 145 over the past 12 months. Which means that the company added more than 300 billion dollars of market cap in just under a year currently trading at one trillion dollars. Plus, the real question about this company should be: where will it be in five years Because where Nvidia will be in five years is going to have a huge impact on your investing decision. Whether you want to invest in the stock NOW sell it now, buy more of it.

Every single decision that's related to Nvidia is grounded on the question of where this company is going to be in five years and before I Move on! A huge thanks for attendees Now Attendees are graciously sponsoring this video. Attendees have done a lot of sponsorships on this channel I Love working with them. They are a free platform. no premiums, no upsells.

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Let's move back to the video and now let's move on to stage one. Now Stage One is something I call Pop The Hood Now whenever I buy a used car I look at a car I pop the hood. The first thing I do is pop the hood, look at the engine I Have no idea what I'm looking at but pretend as if I do oh wow, Hi there. Now it may not be good at looking at engines, but I'm very good at looking at financials.

And in the case of Nvidia, the financials tell a very interesting story. Obviously the most important takeaway from the financials is the guidance 70. Growth is very impressive. The management is guiding for some incredible results.

Now you look at other stuff. There's a lot of impressive issues there that you can look at. For example: 30 down on operating expenses? Very impressive. Very efficient.

A 26 up on net income? Very impressive. Very efficient. You look at Data centers. Data Centers is now driving 4.3 billion dollars in sales.

Absolutely insane. The majority of revenues is now coming from the data center business friend video. Who would have thought that 10 years ago? You see a lot of good there now. Obviously, gaming is down 38, which you would expect as the company's phasing out from that world into Hardware software Ai and data Centers now 100 up in automotive.

Another impressive story, you know Automotive is only about 300 million out of the 7 billion they've made, but that little tiny part is growing at 100 per year, which shows you where the company is heading. Now on the revenue side, it's a little bit of a mixed bag. You know the company did drop by 12.4 percent on an annual basis, but it's still up quarter of a quarter and management is getting for 70 growth, so it doesn't really play that much of a role in investors eyes. Now the second stage I Want to talk about here is looking at the balance sheet.

look at the ratios, how good is the deal and being offered? The company is currently trading at 440 dollars per share. The question is, how good of a deal is it? Based on things we know today like price to earnings, price to sales, What's going on with the balance sheet of the company? Let's take a look now. this might surprise you, but Nvidia is very leveraged. now.

This company is sitting on five billion dollars of cash, but 12 billion in debt. Which means that they're going to have to service all this massive 12 billion dollar debt in a time of high interest rates. And I don't know how long we have these high interest rates for. If you ask the FED it's going to be a while and that's one red flag you have to consider.

Now the other red flag is looking at the ratios. Nvidia is currently trading at PE price to earnings of 228. Absolutely insane Tesla is country trading at 80. But if you look at forward PE which I think is a way better metric in the case of Nvidia forward PE is at 70.

still expensive but way more reasonable and much closer to Tesla. Now the other thing I Want to look at is the price to sales ratio. Currently they're trading at 40 plus very high Tesla is trading at eight. but again, look at the Forward P it's a 25 way higher more expensive than Tesla but way closer to Earth than 4 40 plus and short at 70 priced earnings at 25 price to sales Nvidia is still one of the most expensive companies in the market, but hey, even though this is not Financial Advice and this is not a recommendation to buy or sell Nvidia These are my two cents about why this still kind of makes sense.

And again, I'm not saying by yourself, but listen and hear me out. Look, you're talking about a company that's you know. Remembered for being a gaming company 15 years ago, that ship has sailed. They're sitting on the pipeline to all the important technological developments for the next 15 to 20 years.

Hardware Business Software Business AI Data Centers Full self-driving They're at the Forefront of every single one of these in between hardware and software for AI and the data centers Nvidia has about one trillion dollars of untapped total addressable Market To attack for the next five to ten years. it's going to generate a lot of Revenue The quality oozes out of every single Hall of Nvidia so that makes a lot of sense. but the question is, how much at 440 dollars is it worth my time? So let's run a full DCF A to Z on this company and figure out where we stand with this company. And for that we have to explain what DCF stands for.

DCF means discounted cash flow valuation model. Now it's exactly what it sounds. It takes all the cash flows Nvidia is going to generate over its entire life and it adds them all up into one big pile. and that pile is the market cap of Nvidia Simple as that, We compare it to what's currently available in the market and we see the difference.

If our pile is way bigger than the pile in the market right now, then we say the company is undervalued. But if we get 600 million and the company is trading at one trillion dollars, then we say the company is overvalued. It's very, very simple. There's only a few issues to understand on how to operate this and this is something we teach on a patient Patreon.com forward slash domnash.

If you want to learn how to run your own DCF models join our Academy there's a few spots left. I Highly recommend you try it out. 30 days money back guarantee for you to try it out for free Risk free. Now what is that Cash flow? What is that file? Well let me explain.

The only tricks to this is understanding how to bring future cash flows back to 2023.. Now the idea is very simple. If I tell you hey, I can give you a dollar today or a dollar in a year, which one would you choose? Obviously, you'll take the dollar today. Of course.

obviously because the dollar today is worth way more than a dollar in a year. Same thing, if I owe you a million bucks in five years, how much would you take lump sum today for me to go away? 600, 700, 800, 000. You will take less because you're eliminating the risk, the risk of me running away, the risk of me going bankrupt. a million different things can happen.

and you get to take the money right now. Put it in the stock market and make some money. Make eight percent a year by putting it just in the S P 500 of course. So the thing is, how much do we discount future cash flows when we bring them back 2023 in case of Nvidia Because every single company has its own risk profile.

That risk profile depends on what this company is, what it does, how good it is, etc, etc. And that risk profile is called the weighted average cost of capital or a discount rate, whatever one you choose. But the idea here is very, very simple. I've made my own calculation.

it's on the screen right now. we have 13. So 13 per year is the discount rate for NVIDIA. That simply means that one year from now in July 2024, a hundred dollars of cash flow by Nvidia is worth 87 today and for every year, we're gonna do it again.

So depends on how many years we go into the future, we're going to use that 13 to lower the valuation. So now that we know the risk, We Know By how much we're going to reduce future cash flows when we bring them back to 2023 in case of Nvidia Well, we have to figure out what are these cash flows, how much cash flow will Nvidia generate in the next five to ten years? Well, for that, we have to understand what is the expected growth rate of Nvidia into the future. And for that, there's a few ways to look at it. Number one, we can look at history.

Historically, Nvidia is growing at 27 percent a year. But will history really promise us any future results? I Doubt it. Number two: you can look at analysts. Now in my opinion, analysts don't have a clue what they're talking about.

So I'm going to skip that right away. Number three: you can. With management guidance 70, you can use that obviously. but in my opinion, management is biased even.

Jensen Whose top three CEO in the world is biased? Every single manager is biased towards this company, so that's not a good metric for me. I'm gonna use an objective metric to see how much money the company is reinvesting into the company and how good they are at reinvesting this amount and that percentage is going to give me the future growth. Because if I'm buying more factories, more machinery, and I'm really good at utilizing this extra investment, then my growth rate is going to be bigger. If I'm not reinvesting back into my business, then my growth rate is going to be slower.

Very, very simple, objective, emotion free. Otherwise, we'll just say 50 60 and then our entire model is based on an assumption and has no merit and no objective Brown to stand on. We're not going to do that. Now for that, we're going to use two formulas to see the range and that's of course going to be the bare case of our DCF.

These calculations will give us the first step, the bear case, and then we're going to develop from there on. And there's two methods to find that number. And remember, the formula is very simple: how much money the company reinvests into the business, and how good the company is at reinvesting this. Capital Now again two ways.

One is, look at the return in equity, look at the return on equity which means net income divided by the total Equity of the company and then that multiplied by the retention rate. Retention rate means how much money is being left in the company and how much is given out as a dividend. That is the how much and how good. So let's use 20 for that.

Now the flip side of it is looking in the return on Capital It's a very complex formula, but idea is how much money I'm reinvesting in Capex and change in working capital as a percentage of my earnings before tax, then reducing the tax on that formula and multiplying that by my earnings before tax divided by the total invested Capital Which means that the debt and the equity combined. That gives me a percentage of about 5.1 percent. Let's call it five percent. So the bear case for us for this company is five to twenty percent growth for NVIDIA I Know this shocks a lot of people, but number one, don't forget, this is the bear case.

Number two: This is objectively how to do this. I Know everybody's thinking about that 70 growth rate, but hold on. This is the right way to get it started. And if we start with this 13 discount rate and five to twenty percent on the growth side, we're gonna have a share price that you're not gonna like As an Nvidia investor.

For five percent growth, the result is going to be twenty three dollars per share for twenty percent growth Nvidia is at fifty dollars per share versus the current 440 dollars per share. Now if you use a historical growth of 27, then the price per share is going to be 66. Now if you use the company's guidance 70 growth per year, then the share price is 287 dollars, still well below the 440. the only way we get to 440 dollars per share is by applying it 85 growth rate on this company that is even higher than the 70 Nvidia is guiding for as a company.

85 per year for the next five years is what you need to get out of Nvidia to justify the current 440 share price. But that doesn't mean you shouldn't invest If you're liking video, you like the products, you like the company, you like the business model. There's a way for you to invest in this company without paying the extra expensive price on the share price that everybody's right now following into formal means. Fear of missing out? and this is the way to do it.

Your dollar cost average slowly over time and you double down when the share price dips and you slow down when the share price goes up. So the next three to four years your average cost in Nvidia is actually going to be way closer to the bottom than to the top. Now we teach this system as well as how to do your own DCF How to expect your own growth, How to create your own weighted average cost of capital? your discount rate. And this is something we actually teach every day.

On our Patreon page: Patreon.com Forward slash: Tom Nash We teach you how to get this done, How to calculate your own weighted average cost of capital? How to calculate your own objective expected growth rate not relying on analysts or history or some you know General assumptions We teach you how to model it for yourself so you can become a better long-term investor. We teach you the method of how to DCA the dollar cost average into good companies create lower cost base All these things: Patreon.com Forward slash Tom Nash joined Tom's Academy there's a few spots left. 30 days to try it out. Risk-free money back guaranteed for anybody.

And of course, don't forget to check out stock MVP Stock Dash Mvp.com This is a software I helped to create I'm one of the co-founders This is hands down the best tool for long-term investors to research stocks to run your DCF All that good stuff. Use the code last 40 to get it 40 off for the entire lifetime of use and you have it for one week to try for free. Check it out! I'm sure you're gonna fall in love with it. Thank you so much! I'll see you next video.