FCF Can Power NVDA Stock Much Higher

Here is a summary of how I reached that target price. First, I pointed out that its free cash flow (FCF) for the nine months ending Q3 was $15.7 billion, representing 40.5% of its $38.8 billion in Q1-Q3 total sales.

That YTD 40.5% FCF margin is extremely high. It means that after all its cash expenses, including all its capex spending and working capital needs (not on the income statement), the company still had 40% of its revenue available for discretionary uses. $Advanced Micro Devices (AMD.US)$ $NVIDIA (NVDA.US)$

This cash flow is “free” to be spent on dividends, buybacks, acquisitions, or accumulate in their checking account. Since Nvidia's dividend is very small (just 16 cents per share annually), it costs the company only $100 million out of the $15.8 billion in FCF it generates. The company spent only $3.8 billion of its $7 billion in quarterly FCF on buybacks.

That means the rest of the cash flow is piling up on the balance sheet. Its cash and securities balance rose by $2.258 billion, rising from $16 billion in Q2 to $18.28 billion at the end of Q3. $NVIDIA (NVDA.US)$ $Advanced Micro Devices (AMD.US)$