In recent months, one of the most heated debates on Wall Street has been how to interpret Nvidia (NVDA). As a catalyst for the artificial intelligence revolution, Nvidia provides the graphics processors needed to realize this technology. After surging 1,180% over three years, the stock has fallen 36% from its peak, bringing its price back to where it was a year ago. Many investors believe this sell-off is unjustified and that a rebound is only a matter of time, but one classic financial model suggests Nvidia’s stock should be above $900.
Most Wall Street analysts combine historical data, sales and profit expectations, and financial ratios to gauge stock price direction, with different formulas used by different analysts. UBS takes a different approach, using its HOLT platform, widely regarded as one of the most respected quantitative investment models in the industry. This method focuses on “a company’s historical ability to create wealth and assesses whether the market has reasonably priced its prospects for creating future value.” John Talbott, UBS’s U.S. Head of the HOLT Technology Sector, said, “We think the stock price should be 400% higher than it is now.” If correct, this would push Nvidia’s market capitalization above $22 trillion, compared with its current market cap of approximately $4.46 trillion. Talbott admitted, “This number is hard for investors to accept — that’s the strong objection I’ve encountered.”
UBS believes many accounting metrics distort a company’s true value. The cash return ratio filters out noise and focuses on a key question: how much cash a business generates relative to the capital invested. The average non-financial company has a cash return of 6%, while Nvidia achieves 73% — placing it in the top 0.1% of the 20,000 companies in the HOLT database. Talbott said, “We’ve never seen anything like this in our own system — it’s unbelievable.”
After months of lackluster returns, Nvidia’s stock is rebounding again, rising more than 10% over the past six trading days — its longest winning streak since October. The stock closed Wednesday at $182, near the $185 level closely watched by technical traders. Jonathan Krinsky, chief market technical analyst at BTIG, said holding above $185 would signal the stock has bottomed. Buff Dormeier, chief technical analyst at Kingsview Partners, believes the stock may need to break above $200 for a decisive upward move. He noted that Nvidia’s forward P/E ratio for the next 12 months is about 20, far below its 10-year average of roughly 36, making it one of the cheapest valuations among the “Magnificent Seven” tech stocks.
However, bullish signals could also turn bearish. Technical analysts are watching the $170 level, as a drop below that price could signal further declines to $150. Both analysts warned that it is currently difficult to make a directional judgment on Nvidia’s movement, and the stock is equally likely to continue trading sideways within its existing range.
