Mark R. Hake, CFA

Sun, Jun 22, 2025, 6:00 AM5 min read

Nvidia Inc. (NVDA) stock is cheap based on free cash flow (FCF) price targets. Investors can short out-of-the-money (OTM) NVDA put options to make a 1-month 2.4% yield. This is at 5% lower exercise prices, providing a cheaper potential buy-in point for investors.

NVDA closed at $143.85 on Friday, June 20. In my last Barchart article on May 30, I argued that NVDA stock was worth $191.34 per share. That is still one-third (+33.0%) higher than Friday's price.

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This article will discuss one way to play NVDA by shorting out-of-the-money (OTM) puts. That way, an investor can set a potentially lower buy-in point and get paid for this.

But first, let's look at Nvidia's free cash flow and the related price target.

In my last Barchart article, I showed that Nvidia's Q1 FCF of $26.125 billion represented an astounding 59.3% of quarterly revenue. That means almost 60% of its sales revenue goes straight into its bank account with no cash outlays on it (even after record-high capex spending).

Moreover, I showed that over the last 12 months (LTM), its FCF margin was almost 50% (48.5%). That implies going forward its FCF could rise to a record high.

For example, based on analysts' next 12-month (NTM) projections of $225 billion, using a 50% FCF margin free cash flow could exceed $112 billion:

$225b x 50% FCF margin = $112.5b FCF

How to value NVDA? Let's think about what the market might be projecting. For example, let's assume the market believes Nvidia will make $100 billion in FCF, slightly less than 4 times its Q1 FCF.

So, given its market cap today of $3,508 billion, that represents a 2.85% yield:

$100b/$3,508 = 0.0285 = 2.850% FCF yield

So, using our NTM forecast of $112.5b, its market cap could rise to $3.75 trillion

$112.5b / 0.0285 = $3,947 billion NTM mkt cap

That represents an upside of 12.5% from today's market cap:

$3,947b / $3,508b mkt cap today = 1.125

So, that makes its target price at least 12.5% more:

$143.85 x 1.125 = $161.83

However, if Nvidia makes better than 50% FCF margins over the next year, its target price could be much higher. For example, even a 10% higher FCF margin leads to a 24% upside:

0.55 x $225b = $123.75b FCF

$123.75b / 0.0285 FCF yield = $4,342 billion mkt cap;

$4,342b / $3,508b = 1.2377 = +23.8% upside