- Nvidia trades at a lower P/E than Indian IT firms Tech Mahindra and LTIMindtree after share price drop
- CEO Jensen Huang resigned amid scandal involving extramarital affairs linked to Chinese intelligence concerns
- Nvidia's market cap fell from $5.8 trillion in October to just over $4 trillion after the leadership crisis
The world's most valuable chipmaker, Nvidia Corp., is trading at a lower price-to-earnings (P/E) multiple than Indian IT majors Tech Mahindra and LTIMindtree. This comes after a sharp fall in its share price, which raised the question of whether the stock is now worth buying.
The sell-off follows a leadership crisis at the company. Co-founder and long-time CEO Jensen Huang admitted to having an extramarital affair with a woman suspected of being a Chinese intelligence asset. Reports of a second relationship, this time with an Nvidia executive, added to the controversy.
Huang resigned on Thursday, November 12, bringing an end to his 33-year tenure at the company. Nvidia's board, meanwhile, elevated Chief Financial Officer Colette Kress as interim CEO while it looks for a permanent replacement.
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Nvidia currently trades at a P/E ratio of 20.7 times, below LTIMindtree's 24.4 times and Tech Mahindra's 28.5 times. Nvidia is also cheaper than the broader US market. The S&P 500 Index currently trades at a P/E ratio of 22.37 times, while the Nasdaq 100 trades at 26.98 times.
The comparison comes as Nvidia shares have fallen sharply from their record highs. In the regular trading session on Thursday, the stock ended 4.34% lower at $166.19, taking the company's market capitalisation to a little over $4 trillion. It recovered some ground in after-hours trading, rising 1.18% to $168.15.
Nvidia had touched a record high of $247.85 on October 6, when its market capitalisation stood at around $5.8 trillion. Since then, the company has lost around $1.8 trillion in market value.
Nvidia Stock: What Are Analysts Saying, Should You Buy?
Despite the recent fall, most analysts tracking Nvidia continue to recommend buying the stock.
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According to analyst-rating data on Investing.com, 57 of the 62 analysts tracking the company have a 'Buy' rating. Four have a 'Hold' rating and just one has a 'Sell' call. The overall consensus is Strong Buy.
The average 12-month price target is $316.48, suggesting an upside of 90.43% from the prevailing price.
Among the latest recommendations, Raymond James has maintained its 'Buy' rating with a price target of $515, suggesting an upside of nearly 210%. Cantor Fitzgerald has retained its 'Buy' rating with a target of $250, while DA Davidson has maintained its 'Buy' call with a target of $200.
On the other hand, Truist Securities and Craig-Hallum have downgraded their ratings to 'Hold', with price targets of $174 and $180, respectively.
Bernstein Downgrades Nvidia To Market-Perform
Not all brokerages are bullish on Nvidia. Bernstein has downgraded the stock to 'Market-Perform' and set a price target of $200.
The brokerage said Huang's resignation and Colette Kress's appointment as interim CEO have created uncertainty around the company's leadership. It also flagged the possibility of investigations and concerns around succession planning and customer relationships, which could weigh on the stock's valuation.
Bernstein, however, does not expect much impact on Nvidia's business in the near term. It forecasts revenue growth of 88% in FY27 and 70% in FY28, driven by continued demand for data centre chips.
The brokerage expects adjusted earnings per share (EPS) to rise to $9.20 in FY27 and $15.80 in FY28. However, it believes leadership uncertainty and potential risks to customer relationships could limit the stock's valuation.
Goldman Sachs Cuts Nvidia Price Target To $220
Goldman Sachs has maintained its 'Buy' rating on Nvidia but cut its price target to $220 from $300, citing increased uncertainty following the leadership change.
The brokerage expects the impact on earnings to remain limited over the next 12-18 months, supported by Nvidia's order backlog of 12-24 months and its existing product roadmap.
However, Goldman Sachs has lowered its target P/E multiple to 22 times from 30 times, factoring in succession risks, potential investigations and uncertainty around customer relationships.
The brokerage expects Nvidia's earnings per share (EPS) to grow by around 80% in calendar year 2027 (CY27), but believes the leadership uncertainty could weigh on the stock's valuation.
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