Nvidia, Inc. (NVDA) stock looks at least 22% too cheap here, based on its strong free cash flow (FCF) margins (i.e., using a 39% FCF margin) and using a 2.0% FCF yield valuation metric. Put premiums are high, making shorting out-of-the-money puts attractive.
NVDA closed at $188.15 on Friday, Nov. 7, off its recent peak of $206.88 on Nov. 3. But it could be worth as much as $230 per share, or over 22% higher, based on its strong FCF. This article will show why.
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Nvidia, Inc. (NVDA) stock looks at least 22% too cheap here, based on its strong free cash flow (FCF) margins (i.e., using a 39% FCF margin) and using a 2.0% FCF yield valuation metric. Put premiums are high, making shorting out-of-the-money puts attractive.
NVDA closed at $188.15 on Friday, Nov. 7, off its recent peak of $206.88 on Nov. 3. But it could be worth as much as $230 per share, or over 22% higher, based on its strong FCF. This article will show why.
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NVDA stock - last 3 months - Barchart - Nov. 7, 2025
For the quarter ended July 27, 2025 (fiscal Q2), Nvidia generated $13.45 billion in free cash flow on $46.743 billion in revenue. That works out to a quarterly FCF margin of 28.8%.
In the past three quarters, according to Stock Analysis, its FCF margins were: 59.43% (Q1), 39.54% (Q4 2024), and 47.93% (Q3 2024).
That means its trailing 12 months (TTM) FCF margin has averaged 43.9%. We can use that to estimate its FCF going forward.
For example, let’s assume that over the next 12 months (NTM), the FCF margin will be just 39%. Here’s why.
If Nvidia makes a similar Q3 (with its upcoming release of earnings on Nov. 19) FCF margin of 29% as in Q2, its TTM margin will be as follows:
Q3 ….. 29.0%, Q2 ….. 28.77%, Q1 ….. 59.43%, Q4 2024 …. 39.54%
TTM Average as of Q3: 39.15%
So, to be conservative, let’s use a 39.0% FCF margin for the next 12 months (NTM). For example, analysts now project that revenue for the year ending January 2027 will be $287.24 billion:
0.39 x $287.24 billion = $112.02 billion FCF NTM
We can use that to set a price target, using a FCF yield metric.
This metric assumes that 100% of FCF is paid out to shareholders. What would the dividend yield be? Well, one clue is by dividing Nvidia’s TTM FCF by its present market cap.
For example, according to Stock Analysis, as of Q2, it has generated $72 billion in TTM FCF, and Yahoo! Finance reports that Nvidia’s market cap is now $4.581 trillion:
$72b / $4,581b = 0.159 = 1.59% FCF yield
So, just to be conservative, let’s use a slightly worse FCF yield metric, say, 2.0%. That means, in theory, if Nvidia were to pay out 100% of its $112 billion in FCF next year as a dividend, the dividend yield would be 2.0%.
Where would that leave its market cap in the next 12 months (NTM):