Nvidia’s 11.1x Forward P/E Raises Questions About How Much Risk Is Priced In

The shocking news about Nvidia CEO Jensen Huang’s affair with Alice Huang will pass. It was good that Huang admitted that he messed up and apologized. Since this is a Chinese “honeypot” spy scandal, it will persist in the news and rock Silicon Valley. 

I expect that both the U.S. government and the Nvidia board will clear Huang for the lapse in his personal judgment. Nvidia’s board said that there is “no reason to believe that either national security or Nvidia secrets were compromised,” and then added, “the board’s inquiry will examine all available information.” President Trump defended Huang and said he would “certainly take him” on his upcoming trip to China. Trump added that “I haven’t heard he’s done anything wrong.”  

Nvidia (NVDA) is forecasted to post 91.2% third-quarter sales growth and 90.3% earnings growth. There are no analyst cuts. I recommend that everyone hold Nvidia through its latest earnings announcement. I have no intention to sell Nvidia, since there are no better stocks to invest in. In my opinion, Nvidia is a great near-term buy.

I should also add that I never sold Super Micro Computer (SMCI) when it went through its rough patch, since the analyst community never cut its earnings estimates. SMCI now trades at 4.1 times forecasted earnings, while NVDA trades at 11.1 times forecasted earnings. Clearly, these are bargain-basement valuations that I will never see again in my lifetime.

The other big news this week will be the Consumer Price Index (CPI) on Tuesday. FactSet’s consensus estimates from economists suggest that the October CPI will decelerate to 0.24%, which is substantially lower than September’s 0.6% increase. The core CPI, excluding food and energy, is expected to rise 0.2% in October. Energy prices are finally moderating as they tend to do in the fall, but a resolution with Iran remains fleeting, even though negotiations are expected to commence soon. 

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Louis Navellier and his family own Nvidia (NVDA) and Super Micro Computer (SMCI).