Nvidia Corp. (NASDAQ:NVDA) now carries the lowest forward earnings multiple in the Dow Jones Industrial Average. A personal scandal involving its chief executive helped push it there.
Nvidia is trading at a forward price-to-earnings ratio of 10.64, according to Benzinga Pro data. For comparison, McDonald’s Corp. (NYSE:MCD) sits at 20.56, Amazon.com Inc. (NASDAQ:AMZN) at 25.18 and Microsoft Corp. (NASDAQ:MSFT) at 27.94.
Investors now pay about twice as much for a dollar of expected McDonald’s profit as for a dollar of Nvidia profit.
- NVDA stock continues to fall. Get all the details here.
The Affair
Huang admitted to an affair in a Sunday email to Nvidia staff, and the company’s board has opened an independent investigation into allegations that the woman involved is a Chinese spy.
According to reports, U.S. intelligence agencies have raised concerns that the woman, Alice Huang, a former executive at Nvidia customer Megaspeed, has been passing information to Beijing.
In the email, Huang wrote “There is no excuse for what I did.” The board said it has no reason to believe national security or company secrets were compromised and expressed confidence in Huang’s leadership.
The Selloff
Wall Street did not wait for the probe to finish. Nvidia stock closed 4.27% lower on Monday, and shares sank a further 6% on Tuesday as investors continued to weigh the potential fallout.
Yorkville Ives analyst Dan Ives called the episode a “black eye moment” for Huang in a Nov. 8 post on X. In a Tuesday note, Ives said the board investigation will likely last four to six weeks and weigh on the stock until Nvidia shares more news.
Why the Multiple Collapsed
A forward P/E shrinks when the share price drops and earnings estimates hold steady. Both conditions apply here.
Nothing in the scandal has yet changed the numbers behind Nvidia’s business. The company reported fiscal second-quarter revenue of $96.2 billion in August, up 106% from a year earlier, and guided third-quarter revenue to about $108 billion.
Some analysts have trimmed price targets but kept their ratings. On Tuesday, Citigroup cut its target to $285 from $315 and Wells Fargo cut its target to $300 from $315. The falling share price has done most of the work.
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The Real Risk
Huang co-founded Nvidia in 1993 and remains the face of the AI boom. Markets now have to price a scenario few considered a month ago: Nvidia without Huang at the helm, or with a weakened CEO facing questions from regulators and lawmakers.
Discounts like Nvidia’s can close quickly if the board clears Huang. They can also widen if the investigation turns up something worse.
The company’s next earnings report, expected Nov. 17, will give investors their first look at whether the business itself shows any damage.
NVDA Price Action: Nvidia shares were down 5.53% at $168.80 on Tuesday, according to Benzinga Pro data.
Photo: USA TODAY Network via Reuters Connect
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