Nvidia Stock Holds Steady as Analysts Boost Price Targets
Nvidia Inc (NVDA) stock has been in a holding pattern since reporting exceptional earnings on August 28. Despite this, analysts are increasingly optimistic, raising their price targets for the stock. This scenario presents a unique opportunity for investors utilising short-put options strategies. In this article, we’ll explore why Nvidia’s stock is treading water, how analysts are adjusting their price targets, and how investors can leverage this situation through strategic financial manoeuvres.
Why Nvidia’s Stock is Treading Water
Since its earnings release, Nvidia’s stock has remained relatively stable, closing at $116.00 on September 20, close to its post-earnings price of $117.59 on August 29. This stability makes Nvidia an attractive candidate for short-put options, particularly because the stock is still undervalued according to several analysts.
One of the driving factors behind Nvidia’s attractiveness is its robust free cash flow (FCF). The company is generating significant FCF, which has caught the attention of the market. In fact, Nvidia’s FCF margins have been consistently strong, making it a reliable investment even when the stock price is stable.
Analysts Keep Raising Their Price Targets
Since the earnings report, analysts have been increasingly bullish on Nvidia. Yahoo! Finance reports that 50 analysts now have an average price target of $145.22, slightly up from $142.75 three weeks ago. Barchart and AnaChart also report similar increases, with mean targets now at $148.82 and $145.39, respectively. These raised targets suggest a potential upside of over 25% from the current stock price.
Seeking Alpha projects Nvidia’s revenue for the next year at $175.59 billion, up from $174.34 billion earlier. Applying a conservative 45% FCF margin results in an estimated $79 billion in FCF for 2025. Using a 2% FCF yield metric, this implies a market cap of $3.95 trillion, significantly higher than Nvidia’s current market cap of $2.845 trillion. This suggests that Nvidia’s stock could be worth 39% more, or approximately $161 per share.
How the OTM Short Put Play Worked Out
In a previous article, a strategy was suggested involving selling short the $113.00 strike price put option expiring on September 20. Since Nvidia’s stock closed at $116.00 on that date, the $113.00 short-put contract expired worthless, resulting in a 2.74% yield for the short seller. This strategy not only provided a good return but also eliminated the obligation to buy shares at $113.00.
Given the success of the previous short-put strategy, it makes sense to consider new opportunities. For instance, selling short the $108 strike price put contract expiring on October 18 offers a high bid-side premium of $2.43 per put contract. This strike price is 6.90% below the current stock price, offering a put yield of 2.25% over the next month.
Less Risk-Averse Options
For investors willing to take on a bit more risk, shorting the $110 strike price put contract is another viable option. This contract offers a premium of $3.00, representing a 2.727% yield. Both of these options provide extra income and a lower buy-in point should the stock price fall to these strike prices.
While short-put strategies can be lucrative, they are not without risks. The main risk is that the stock price could fall below the strike price, obligating the investor to buy shares at a higher price than their current market value. However, the high premiums received often offset this risk.
The continuous increase in analysts’ price targets further supports the case for Nvidia’s future growth. For example, AnaChart reports that 39 analysts have raised their average target to $145.39, up from $143.43 three weeks ago. This trend indicates strong market confidence in Nvidia’s financial performance and future prospects.
Nvidia’s Revenue and FCF Potential
The projected revenue and FCF for Nvidia continue to impress analysts and investors alike. With an estimated $79 billion in FCF for 2025, Nvidia’s financial health appears robust. This strong cash flow is a significant factor behind the rising price targets and the overall bullish sentiment.
Short-put strategies are particularly effective in markets where the stock price is stable or slowly rising. Nvidia’s current market behaviour fits this profile perfectly. The high premiums offered by short puts provide a steady income stream for investors, while the rising price targets suggest a limited downside risk.
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