NVDA DCF Conclusion Study and Scenario Analysis
The DCF: A powerful tool, even for Intraday/Intermediate-Term Traders
Hey Folks - hope you are having a good Presidents Day Long Weekend.
Markets are closed today for the holiday, but key focus of this week will be NVDA earnings on Wednesday.
NVDA is an important company to the Nasdaq-100 (NQ) with a 5% weight for the index as well as a major leader within the Semiconductor ecosystem. Market pivots are often caused by major macro inflection points (CPI/FOMC) or Earnings Outcomes of Key Companies.
I constructed a personal DCF along with scenario analysis for NVDA to give me a sense of how much the company may be worth depending on margin expectations and valuation ranges.
Shared beneath the paywall below.
Before I get into that, I want to take a moment to talk about a peer within the Semiconductor industry that has been on a large run - SMCI (Super Micro Computer).
Its parabolic rise suggested to me that retail participation would increase in this stock, so naturally, one area that I thought may include a lot of discussion surrounding this ticker was popular forum Reddit.
In the weeks leading up to this past week, I had a couple observations regarding what I saw from Reddit on SMCI:
Only a Small number of people benefited from the parabolic rise up (fewer than you imagine).
Surprisingly, a rather large number of people tried to SHORT the stock by selling naked calls or sell call spreads or go long puts.
The result? As the stock squeezed higher, it wasn’t a lot of people getting wealthy - it was a lot of pain that was actually being inflicted on retail investors who shorted because “it was too high”. This created a positive feedback loop on the stock’s momentum where short-sales had to surrender to a rising price, which kept on going.
Naturally, this made me curious.
So, I did a personal DCF on this name, ran the most optimistic scenarios, and added a bit of a “euphoria push”.
The result I got was a region between 1000 and 1200. I estimate that Retail tried to short SMCI between 600-900, driving a big short squeeze to 1000, and capitulated in that area. At the same time, I believe another group of investors may have tried a bullish breakout attempt north of 1000+.
By Feb 14th (SMCI at 800), I shared that 1000/shr SMCI key level on Twitter and my thinking that FOMO would accelerate the advance higher only to get cut by 1/3 later this year. This 1000 level now appears to be the maximum point of pain where late longs chased Weekly Calls and old shorts had to surrender.
1000 was not an arbitrary number - it’s psychological and a region of intense debate.
The climatic action resulted in SMCI on Friday getting a 20%-off haircut.
Bubbles are very difficult to trade, and I stay away from them.
That being said, I use DCFs on Key Companies as secondary signals to better understand intraday/intermediate-term levels on the S&P 500/ES and Nasdaq-100/NQ.
Is NVDA about to pop in a similar manner? Let’s find out with DCF analysis.