Nvidia shares hit 12 times earnings as CEO exit and AI doubts test the bargain
Nvidia shares are trading at about 12 times expected earnings, their lowest valuation since 2012, after a week in which the chipmaker lost its chief executive and slid more than 30% from its October 6 record high. The stock fell more than 5% on Thursday following Jensen Huang's resignation and is down roughly 12% this week amid a scandal over reports of his extramarital affairs, including one with a woman alleged to be a Chinese spy.
Chief Financial Officer Colette Kress has taken over as interim CEO while Nvidia searches for a permanent successor. Leadership is not the only worry: investors are also questioning whether the buildout of AI data centres, which has driven demand for Nvidia's GPUs, may slow. "This is a key-person event, not a demand event. Nobody is canceling GPU orders because the CEO resigned," said Erik Kratz, co-head of wealth and chief investment officer at Arena Private Wealth in Chicago. He added that stocks historically take time to find a bottom after an abrupt CEO exit while the market works through investigations and the search.
A low price-to-earnings multiple can signal a bargain, but it can also reflect doubts that forecast earnings will materialise. So far analysts have kept their profit forecasts, expecting demand for Nvidia's chips to outpace supply. On average they expect October-quarter revenue to rise 92% and net profit to top $60 billion, up 89% year on year, according to LSEG data.
Nvidia reports quarterly earnings on Tuesday, and investors will be watching whether that growth can survive without Huang. What Kress says about the company's outlook may matter more than the results themselves.
