In Friday’s trading session, Nvidia (NVDA) closed at $185.98, rising 1.61% from the previous session. This change lagged behind the S&P 500’s 1.09% increase for the day. Moreover, the Dow Jones gained 1.21% while the Nasdaq surged 1.34%. Plus, some bullish options bets that would indicate that Nvidia stock may surge higher, rising by at least 11% in the coming weeks and months.
Let’s take a look at the company’s valuation, options activity, and technical chart to see if NVDA is investable at the current levels.
Nvidia is expensive, even compared to an industry with demanding valuations. Nvidia’s TTM multiples compared to its industry’s median are as follows:
- 38.45x versus 21.04x non-GAAP P/E
- 10.94x versus 2.60x P/S
- 10.78x versus 3.25x P/B
- 40.44x versus 15.38x EV/EBITDA
- 36.65x versus 18.94x P/CF
The company’s P/E multiple is also trading with a large premium compared to its historical value. NVDA’s P/E has been as high as 61.12 and as low as 10.46, with a median of 24.52. However, the stock trades at a lower P/E multiple compared to its peer, AMD, which has a P/E multiple of 81.09. To learn more about AMD’s valuation, recent options activity, and technical outlook, please see Why AMD Stock Could Surge after Its Q3 Earnings.
Finally, Nvidia has a solid margin profile with 58.57% gross, 22.4% operating, 25.63% EBITDA, 26.92% net—and 15.50% free cash flow margins. These figures substantially outperform the industry’s median. The industry stands at 47.38% gross, 5.72% operating, 10.48% EBITDA, 3.82% net, and 6.54% free cash flow margins.
NVDA options analysis
The implied volatility for the options, at a $185.00 strike price that expires on November 15, stands at 44.78%. This number means investors are expecting an event that could cause modest movement in one direction or another.
Looking at the November 15 options, I see a bid/ask for the $185.00 call option of $10.85/$11.15. Also, I see a bid/ask for the $185.00 put option of $8.40/$8.80. Keep in mind that the options strike closest to the previous NVDA closing price of $185.98. We can calculate the expected price move using the mid-prices of these options:
8.6 (185.00 Put) + 11.00 (185.00 Call) = 19.6/185.98 = 10.6%
As you can see, the options imply that NVDA stock could rise or fall by ~11% by the November expirations from the $185.00 strike price using the long straddle strategy. This assessment would place the stock in a trading range of $166.38–$206.43 by the expiration date.
Moreover, the calls at the $185.00 strike price outweigh the put options about 6:1 with 2,677 open calls to 418 open puts. Plus, the calls at the $200.00 strike price outweigh the put options about 32 to 1 with 3,638 open calls to just 113 open puts. A buyer of the $200 strike price calls would need the stock to rise to around $204.45 by the expiration date.
Bullish options bets
The options, which expire on October 18, saw increased call buying on Friday, October 11. The open interest for the $187.50 calls rose by 1,383 contracts to a total of 2,375 open contracts (source: barchart.com). A buyer of those calls would need the stock rise to $191.1 by the expiration date, a gain of about 3% from NVDA stock’s current price
Also, the open interest levels for the October 18 $195.00 calls almost doubled on Friday. According to barchart.com, the open contracts rose by 1,331 contracts to about 4,301. It’s a large, bullish bet as the open interest represents a total dollar value of about $451,000. A buyer of the calls would need the stock rise to $196.05 by the expiration date, a gain of about 5.4% from NVDA stock’s current price.
Technical outlook for Nvidia stock
Looking at the daily chart, we can see what’s going on with NVDA. The technical chart for NVDA is very bullish and shows a technical pattern knows as a “higher high.” The pattern suggests the stock will continue to rise. To the upside, the $195–$200 price level remains the key resistance area to watch. However, should the stock drop below the uptrend, the stock could fall back to roughly $160.00.
Analysts’ coverage and target price
A lot of Wall Street analysts have upgraded NVDA over the last six months. The consensus price target was $189.67, which represents 1.23% upside. See MarketBeat for a detailed breakdown. According to TipRanks, NVDA is a “moderate buy” with an average price target of $ $190.45, representing 1.68% upside.
For more analysis, see Intel Stock Is Undervalued: What Should Investors Do?