According to the Zhitong Finance app, since reaching its all-time high on October 6, NVIDIA's (NVDA.US) market capitalization has declined by nearly $1.4 trillion. According to statistics, as of November 5 alone,
The sell-off wiped out approximately $450 billion in market value, with NVIDIA plunging more than 9% and Broadcom (AVGO.US) falling over 10% that day.
The trigger for this sell-off came from political shifts in Washington. The Democratic Party gained control of both chambers of Congress, and candidates from both parties opposed AI data centers during their campaigns—
These computing facilities are a core application scenario for NVIDIA chips.
Many investors today believe NVIDIA’s valuation is already cheap. However, in an interview on November 6, Josh, CEO of Ritholtz Wealth Management,
Brown questions the notion that a 14x P/E ratio constitutes a bargain and issues a warning: "If NVIDIA's earnings over the next 12 months are revised down by 5% from our expectations, the stock could decline by"
40%.
He also admitted: "This is a scenario I've modeled, but such a decline is indeed possible." In simple terms, for every 1 percentage point reduction in profits, the stock price could fall by 8 percentage points.
The valuation is cheap for a reason.
Brown's argument begins with a group of AI users
Major players in the hype cycle include Broadcom and NVIDIA. Over the past year and a half, their valuation multiples have continuously contracted: “The valuation compression has been extremely severe. The only reason their stock prices haven’t crashed is that earnings growth has outpaced the rate of valuation contraction.”
NVIDIA's profit growth momentum is indeed rapid. Analysts project adjusted earnings per share of $9.31 for fiscal year 2027 (ending January 2027) and $15.91 for fiscal year 2028.
USD, $21.34 for fiscal year 2029. The profit forecast for fiscal year 2028 alone has been raised by 25% since the end of June.
However, valuation multiples moved in the opposite direction. On November 5, NVIDIA’s forward P/E ratio fell to 15x, reaching the bottom of its three-year range and just half of its long-term average of 30x.
Brown's interpretation is: The market never believed this wave of high growth could continue into 2027 and 2028. 15
The high P/E ratio confirms this assessment: investors have priced in NVIDIA’s earnings over the next two years as if they represent the peak. Market consensus also indicates that revenue growth will decline from 68.2% in fiscal year 2028 to
30.5% for fiscal year 2029.
What would cause a 40% decline?
At a 15x forward P/E ratio, if valuation remains unchanged, a 5% earnings downgrade would only lead to a 5% decline in stock price. For a 40% drop to occur, the valuation multiple would need to contract simultaneously to approximately 9.5x.
Multiply (calculate: 15 × 0.6 ÷ 0.95).
According to statistics, NVIDIA's forward price-to-earnings ratio data dates back to 2014 and has never fallen below 14x.
Therefore, for Brown’s envisioned 40% plunge to materialize, merely a modest reduction in profit expectations is insufficient; investors must also reach a consensus that NVIDIA’s growth will stall after fiscal year 2028.
NVIDIA investors have not been unfamiliar with growth slowdowns. In fiscal year 2023, the company's revenue remained flat at $27 billion, and its GAAP operating margin declined from 37.3% to 15.7%. As
The AI wave surged, with revenue increasing eightfold over the next three years to $215.9 billion.
Venture capitalist Tomasz Tunguz
He believes history could repeat itself. On a program, he noted that chips are already piling up in warehouses due to insufficient power supply to support compute deployment. He warned: “At some point, NVIDIA’s order growth will stall simply because the U.S. lacks the infrastructure to deploy this compute; at that time, related stocks will face a severe shock.”
After the election results were finalized, this concern became harder to ignore. In fiscal year 2026, NVIDIA generated $149.6 billion in revenue from domestic U.S. customers, accounting for 69.3% of total revenue.
Fiscal year 2028 itself is not a source of risk.
In the short term, earnings downgrades are not necessarily expected over the next 12 months. The company forecasts approximately year-over-year revenue growth for fiscal year 2028.
70%, and stated that supply limits are the core constraint on revenue; meanwhile, customer demand forecasts indicate there is still room for growth to double. Over the past three quarters, NVIDIA's revenue has consistently exceeded the upper end of its guidance.
On November 5, renowned financial TV host Jim Cramer presented a bullish case on his show: if NVIDIA's earnings meet expectations exactly, "this 70% growth stock"
The stock trades at less than 12 times earnings for next year. Market consensus expectations also support this growth estimate: earnings per share are projected to rise from $9.31 to $15.91, an increase of exactly 71%.
Cramer also added a risk caveat: "But if growth completely stalls next year, it won't be cheap—assuming the U.S. fails to approve new data centers at the current pace."
In Brown’s view, the risk-reward profile of this trade is indeed asymmetric. But a mere 5% cut in next year’s earnings wouldn’t cause NVIDIA to plummet 40%; only a scenario like 2029 could trigger such a steep decline.
The earnings outlook for the fiscal year has been revised downward, which is the time window Cramer and Tunguz jointly feared. The current 15x P/E ratio has largely priced in this major concern, as long as 2028
The earnings guidance for the fiscal year remains unchanged, and this low valuation itself serves as a buffer.
Of course, the first test will be on November 17, Eastern Time, when NVIDIA reports its third-quarter earnings. The company previously provided a revenue guidance range of $108 billion, plus or minus
2%. However, management's comments regarding fiscal year 2028 and whether U.S.-based data center customers are beginning to reduce orders may be more critical points to watch.