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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.