NVIDIA Stock Analysis in 9 Minutes

Added: 2026-05-28

[00:00:00]Is Nvidia's stock a buy, hold, or a sell? I scored Nvidia on six distinct categories, and by the end of the video, you'll see my final scores. Now, Nvidia is a $5 trillion market cap company that was founded in 1993. Its mission is to solve problems that are barely possible.

[00:00:17]The company has compounded at a 36% compound annual growth rate since it came public, which smashes the 7% return of the S&P 500 over the same time period. Now, Nvidia designs chips, networking gear, and software that powers the world's largest AI systems.

[00:00:31]Think of Nvidia kind of like a picks and shovels supplier to AI built companies.

[00:00:36]Now, a key thing to understand about Nvidia is it doesn't just sell hardware.

[00:00:39]It has a software platform called CUDA, which was launched way back in 2006.

[00:00:44]This software is used by millions of developers, and it's a key thing that separates Nvidia from the competition.

[00:00:49]Now, who buys Nvidia's products? Well, while the answer there is millions of individual consumers, the large US hyperscalers like Microsoft, Amazon, and Alphabet have become dominant buyers of this company's products. Now, another major category is the neo cloud providers, which operate GPU as a service. These are companies like Coreweave, for example, that actually buy up Nvidia's chip capacity and then rent them out. Other major customers are actually sovereign AI programs, as well as everyday consumers and gamers. From a revenue perspective, about 91% of this company's revenue comes from selling to data center operators. This number used to be way smaller just a few years ago, and only about 7% of this company's business today comes from gaming. On a geographical level, about 69% of this company's revenue comes from the US, 20% from Taiwan, and 9% from China, and the rest of world making up 2%. From a business quality perspective, this company's revenue has actually become highly predictable as the demand for AI chips has just taken off. The company clearly has pricing power as margins have exploded. The company is far more recession proof than it used to be, at least during this AI build-out cycle, and the company's competitive position is absolutely dominant. That's really a huge part due to CUDA, which has about 5.9 million developers around the world.

[00:02:01]Overall, on a scale of 1 to 5, I would rate this business as highly exciting.

[00:02:05]Before we can do the rest of our analysis, we need to figure out which phase of the business growth cycle this company is in. I think it's very clear that NVIDIA is in phase four, the capital return phase, because revenue is still growing, it's profitable and earnings are rising, and the company's actively buying back stock and dividends. The revenue growth has been outstanding, the operating profits are absolutely huge, and the company is pouring tens of billions of dollars into buybacks annually, and it even pays a tiny dividend. So, I'm personally happy to see that this company is in phase four, the capital return phase. When thinking through the company's moat, I think it's very clear today that NVIDIA has a very wide moat, and it is in part due to CUDA's extreme switching costs amongst those 5.9 million developers.

[00:02:44]Now, if you're looking for proof of that, take a look at the company's margins and return on invested capital, both of which are sky-high. Now, just as important to me is the company's moat direction, and I think it's very clear that the company's moat is absolutely widening. You can tell that that's happened from the margin expansion, from the increases return on invested capital, and the fact that the company's customer base continues to grow over time. We've seen massive growth in revenue in the just the last couple of years, and everything that I can see can tells me that this company's moat continues to get bigger. Thinking through the individual components of moat, I think that this is a company with high switching costs, it has a very strong and dominant brand name, and the company has cost advantages over smaller rivals. So, when looking at the state of NVIDIA's moat, I would give it currently a wide rating, and I would say that the current direction is actually growing.

[00:03:28]Now, can this company continue to grow?

[00:03:30]Well, to figure that out, we first have to look backwards. This company's revenue growth has been nothing short of astounding. Over the last three years, revenue has grown at a 100% compound annual growth rate to 153 billion in the last 12 months, and importantly, the company is turning that revenue growth into profits with 160 billion in trailing 12 months profits. Free cash flow has also kept up, growing about 86% annually. And while hyper growth at this rate will be impossible at some point, all systems look like the company's growth rate is going to continue for the near term. Now, the biggest factor that's powering this company's growth is the insane investment that's going into AI right now. Uh the hyperscalers are pouring hundreds of billions of dollars annually into building out their capacity, and Nvidia is acting almost like a toll booth on that spending. Now, in addition to that, the company does have some new offerings under its belt that could drive continued growth down the road. I would say that the biggest opportunity there is robotics, but it has a long way to go before that becomes needle-moving growth for the company.

[00:04:29]So, I think the most important segment of this company for the next couple of years is going to be AI. Now, in thinking through this company's size and scale, I think that this company's growth rate, at least for the next couple of years, is five out of five, very high. Next, let's shift to the management team, which I think is about as good as it gets. Uh Jensen Huang has been running this company and founded it 33 years ago. Uh he's successfully transitioned the company from just a gaming operator to the AI leader that it is today. He's seen 10x growth, basically, almost 10x growth in revenue in just the last four years. And he has an excellent track record of blowing out Wall Street's expectations. Now, he owns about 4% of the company's stock, which doesn't sound like a lot, but that's over 170 billion dollars uh in stock on paper. Now, in digging through the details, we see that employees give Jensen Huang excellent ratings on sites like Glassdoor. The company clearly has a history of blowing past expectations.

[00:05:24]The management team has proven to be shareholder friendly with buying back stock and paying a dividend. And the company's return on capital, which is the right metric to look at at this stage, has been absolutely sky-high. So, in thinking through the management team, I I think this is about as good as it gets. To me, it's a five out of five.

[00:05:39]Now, moving on to risks, there are a couple of key risks that we need to keep in mind. The most important to me is just customer concentration risk. This wasn't a big deal just a few years ago, but now four individual customers are more than 10% of total revenue. That's going to be the hyperscalers we talked about before. So, Microsoft, Amazon, Google, etc. If one of those customers was to leave for any reason, that could put a serious dent in this company's growth profile. The second thing to keep an eye on is just geopolitical risk.

[00:06:09]We've seen a lot of geopolitical stuff between the US and China, and relationships there are deteriorating.

[00:06:14]Moreover, the company is highly dependent on TSMC for its fabrications, and that is a risk that investors are going to have to permanently accept. So, on an individual risk level, there are concentration risks to keep in mind.

[00:06:26]Disruption could be a threat because many of these hyperscalers are choosing to develop their own chips rather than go through the tollbooth that is Nvidia.

[00:06:33]That's a risk to keep in mind. There are several factors that are outside of this company's control, namely being geopolitical ones. That's something that investors are going to have to keep in mind. On the flip side, from a financial standpoint, this company's financials are about as healthy as it gets. So, things like interest coverage are not a risk at all. On a scale of one to five, I would give this company an overall risk rating of three, moderate. Now, finally, let's turn our attention to valuation. Remember that this company is in phase four, the capital return phase.

[00:07:00]So, the appropriate metric for us to look at is the PE ratio. Now, when looking backwards, the company's PE ratio is currently about 32.5.

[00:07:10]And while that is below what it's traded at over the last five years, we can expect that the company's growth rates will slow down in the future. That usually means that the market starts to assign it a permanently lower PE ratio.

[00:07:22]But, when looking at the stock price as of May of 2026, there's no doubt that the price today is more attractive than it has been over the last couple years.

[00:07:29]I think the next best valuation metric to look at is the company's price to free cash flow ratio, and this number is currently about 43-ish.

[00:07:37]Again, this is below its five-year average, but this number should continue to drift down lower over time as the growth rate eventually slows. Now, another type of analysis that we should definitely do is reverse discounted cash flow analysis. As of the time of this recording, the market is pricing in about 19% annualized growth in free cash flow over the next 10 years to justify today's stock price. While that's certainly not an impossibility, it represents a substantial slowdown from what we've actually seen happening.

[00:08:04]There's no doubt that that is a pretty high number that this company has to beat, especially when it's hard to forecast where AI spending is going to be in 3 years, let alone 10. But, taking everything into consideration, I would think that Nvidia is actually fairly valued today based on the numbers that I see. So, overall, I give this company a very high score. It's very clearly an amazing business that's in the capital return phase. The moat is wide and continues to widen. The growth at this scale is about as good as it get. The management team is excellent. Offsetting that is the risk here is moderate, and I think at today's prices, the valuation is fair or so. I would personally like to wait for a lower valuation before I would make this a big holding for me given the company's extreme size and scale, but I don't think the company is wildly overvalued anymore. So, if you believe that the AI gravy train is going to continue for at least a couple more years, I would have no problem adding the stock to my buy list. Now, I did all this analysis with the help of stocksimplifier.com. If you're interested in giving it a try, plan started about 16 bucks per month, and I'll leave a link in the video description. Thanks for watching, and I'll see you in the next video.