Nvidia PE falls to 14-year low, but CEO exit and AI worries cloud the bargain

Analysts see Nvidia shares as a bargain with a 14-year low valuation, trading at around 12 times expected earnings. This is the lowest the chipmaker's stock has been since 2012, despite competing with Advanced Micro Devices in the videogame graphics card market and struggling with mobile devices.

Nvidia's stock dropped more than 5% on Thursday after CEO Jensen Huang resigned, and has fallen about 12% this week because of a scandal involving allegations of his extramarital affairs, including one with a woman believed to be a Chinese spy. Colette Kress, Nvidia's CFO, is acting as interim CEO while the company searches for a permanent replacement.

However, concerns about leadership and potential AI market slowdown are troubling investors. The company's GPUs have powered the AI boom, but its shares are down over 30% from their record high, mainly due to worries about a potential slowdown in AI data center construction.

Erik Kratz, co-head of wealth and chief investment officer at Arena Private Wealth, explained that Huang's resignation is a "key-person event" rather than a demand issue. He noted that stocks often take time to find a bottom after a CEO exit while the market sorts out investigations and the search for a new leader.

Nvidia is set to report earnings on Tuesday, and investors are watching to see if the company's rapid growth can continue without Huang. While analysts have maintained their forecasts for strong profit growth, expecting Nvidia's demand for chips to outpace supply, this could change after the earnings release. Analysts currently expect Nvidia to report a 92% surge in October-quarter revenue and a net profit over $60 billion, an 89% increase year over year.