Discounted Cash Flow (DCF)
The DCF model is the fundamental anchor of corporate valuation. It determines the present value of expected future cash flows using a discount rate (typically the Weighted Average Cost of Capital).
While AI and alternative data (Alpha Decay) focus on predicting next quarter's earnings surprise, traditional fundamental analysis uses DCF to determine long-term intrinsic value.
The output of a DCF is highly sensitive to the terminal growth rate and discount rate. Small changes in assumptions lead to wildly different valuations, similar to the sensitivity of Options Pricing to implied volatility.