Nvidia's Valuation Hides a Trading Range

Nvidia, Inc.'s (NVDA) recent earnings report was impressive, with revenue and earnings exceeding market expectations.

However, its free cash flow (FCF) and FCF margins were lower than in Q1, which may indicate a sticking point for the company's valuation.

NVDA stock has been relatively flat over the past four months, trading within a range that may not be indicative of its true value.

Analysts predict revenue will increase by 62% next year, with all chip capacity and revenue presold through 2023. Applying a conservative FCF margin of 42%, NVDA's potential FCF would be $226 billion, a significant increase from last year's $127 billion.

This would translate to a fair market value (FMV) of approximately $6.8 trillion, or 30% higher than its current market cap of $5.253 trillion.

NVDA's trading range may shift upwards, but it is undervalued according to these calculations, making shorting out-of-the-money puts a viable option for investors.