Has Nvidia affair scandal and price plunge really made the shares a bargain for investors?
CEO Jensen Huang has come under fire for an affair which could put national security and company strategy at risk
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The Nvidia share price was attractive by one key metric even before news of chief executive Jensen Huang's affair with a suspected spy for China, but they have fallen further this week .
Investors had already been spooked by the Democrats’ ‘blue wave’ win in the US midterm elections, the related risk that data centre building could be slowed and questions over how viable the funding for many AI companies is with interest rates rising.
There comes a point when all the bad news is already reflected in share prices. Correctly identifying this, however, is not easy.
While Nvidia is integral to the development of AI and we are still in the very early stages of that, there are some significant risks that could cause its shares to fall even further.
By the most widely used measure, Nvidia shares are now cheap.
The forward price to earnings ratio is the measure of a company’s stock price to its forecasted earnings (profit) per share issued. For example, a company with a share price of £100 and forward earnings per share of £5 has a ratio of 20.
This calculation is the bedrock of how analysts start to assess whether a company is undervalued or overvalued, on a relative basis.
Nvidia’s current forward price to earnings ratio as of 11 November is 12 to 14 times, depending on the specific earnings forecast you use.
To get an idea of how cheap or expensive a company is, you can compare the price to earnings ratio to other similar companies, or the entire stock market.
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The average forward price to earnings ratio for the Magnificent Seven tech giants, which includes Nvidia, Alphabet (Google), Apple, Amazon, Tesla, Meta Platforms and Microsoft is around 22. This is significantly more expensive than Nvidia alone.
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- The Independent11 Nov, 14:08
| Publisher The Independent (established tier) | +76 |
| Total | 76 |
Method: reports are grouped by the words of their headline and summary; each newsroom counts once; figures are read from the reports as published. Nothing here is written by an AI.