NVIDIA (NVDA.US) closed at $188.15 on November 7, retreating from its recent high of $206.88 on November 3. Analysis indicates that based on its robust free cash flow, the stock could be undervalued by approximately 22%, with a potential target price of $230 per share.

Using a conservative free cash flow margin of 39% and a free cash flow yield valuation metric of 2.0%, NVIDIA's stock appears at least 22% undervalued. The high premium on put options also makes selling out-of-the-money puts an attractive strategy.

**Strong Free Cash Flow Metrics and Projections** For the quarter ending July 27, 2025 (Q2 of fiscal year), NVIDIA generated $13.45 billion in free cash flow on $46.743 billion in revenue, yielding a free cash flow margin of 28.8%. Over the past three quarters, its free cash flow margins were: 59.43% (Q1), 39.54% (Q4 2024), and 47.93% (Q3 2024), averaging 43.9% on a trailing twelve-month (TTM) basis.

Assuming NVIDIA maintains a 29% free cash flow margin in Q3 (earnings to be reported on November 19), the TTM average would adjust to 39.15%. Projecting forward, if the free cash flow margin remains at 39% for the next fiscal year, analysts estimate annual revenue of $287.24 billion by January 2027. Multiplying this by 39% yields $112.02 billion in projected free cash flow for the next 12 months.

**Valuation Based on Free Cash Flow Yield** Using a free cash flow yield benchmark of 2.0%, NVIDIA's implied market capitalization would be $5.6 trillion ($112.02 billion / 0.02), representing a 22.24% upside from its current $4.5 trillion market cap. This translates to a target price of $230 per share (1.2224 × $188.15).

**Selling Out-of-the-Money Puts for Entry** Given elevated volatility, NVIDIA's put options are trading at higher-than-usual premiums, making them appealing for sellers. For example, the December 12, 2025, $170 strike put (10% below the current price) offers a median premium of $4.60 per contract. Selling this put would yield a 2.71% return ($460 on $17,000 collateral) with a breakeven price of $165.40 ($170 - $4.60), 12% below the recent close.

If NVIDIA reaches the $230 target, sellers could realize a 39% gain ($230 / $165.40). Alternatively, selling the $175 strike put (29% probability of exercise) offers a higher premium of $6.05, translating to a 3.457% return and a breakeven of $168.95 ($175 - $6.05), 10.2% below the current price.

In summary, NVIDIA's strong cash flow metrics and undervaluation signal a potential buying opportunity, with selling out-of-the-money puts providing an attractive risk-adjusted entry strategy.