A 14x PE is not a bargain! Renowned wealth management CEO warns: If Nvidia (NVDA.US) earnings are revised down by 5%, its stock price could drop by 40%.

According to Zhitong Finance APP, since reaching its all-time high on October 6, Nvidia (NVDA.US) has seen nearly $1.4 trillion wiped from its market capitalization. According to statistics, the sell-off on November 5 alone erased about $450 billion in market value, with Nvidia plunging over 9% and Broadcom (AVGO.US) dropping more than 10% on the day.

The trigger for this round of sell-off came from political changes in Washington. The Democratic Party won control of both houses of Congress, and both party candidates expressed opposition to AI data centers during their campaigns—facilities that are the core application scenario for Nvidia chips.

Now, many investors believe Nvidia's valuation is already cheap enough. However, in an interview on November 6, Ritholtz Wealth Management CEO Josh Brown questioned the notion that a “14x P/E ratio means it’s a bargain” and issued a warning: “If Nvidia’s earnings over the next 12 months come in 5% below expectations, the stock could fall 40%.”

He also admitted: “This is my scenario analysis, but such a magnitude of decline is indeed possible.” Simply put, for every 1% downgrade in earnings, the corresponding share price drop would be 8%.

Valuation Is Cheap, But for a Reason

Brown’s argument begins with the large companies riding the AI wave, including both Broadcom and Nvidia. Over the past year, their valuation multiples have continued to shrink: “The compression in valuations is extremely sharp. The only reason the stock prices haven’t crashed is because their earnings growth has outpaced the rate of valuation compression.”

Nvidia’s earnings growth has indeed been explosive. Analysts predict the company's adjusted EPS will reach $9.31 for fiscal 2027 (ending January 2027), $15.91 for fiscal 2028, and $21.34 for fiscal 2029. Earnings expectations for fiscal 2028 alone have already been raised by 25% since the end of June.

But valuation multiples are moving in the opposite direction. On November 5, Nvidia’s forward P/E fell to 15x, near the bottom of its three-year range and only half of its long-term average of 30x.

Brown interprets this as: the market simply doesn't believe this round of high growth can be sustained through 2027 and 2028. The 15x P/E ratio confirms this view: the price investors are assigning to Nvidia’s earnings over the next two years already assumes these are peak levels. Consensus also shows revenue growth is expected to slow from 68.2% in fiscal 2028 to 30.5% in fiscal 2029.

What Would Cause a 40% Decline?

Given a 15x forward P/E, if valuation remains unchanged, a 5% downgrade in earnings should only bring down the share price by 5%. To trigger a 40% drop, the valuation multiple would also need to compress to around 9.5x (calculation: 15 × 0.6 ÷ 0.95).

According to statistics, Nvidia’s quarterly forward P/E data can be traced back to 2014, and historically it has never fallen below 14x.

Therefore, for Brown's envisioned 40% plunge to become reality, simply lowering earnings expectations slightly is not enough—the market would also need to reach a consensus that Nvidia’s growth will stall after fiscal 2028.

Nvidia investors have not been strangers to growth slowdowns. In fiscal 2023, the company’s revenue stagnated at $27 billion, and its GAAP operating margin fell from 37.3% to 15.7%. However, with the AI boom, revenue in the following three years soared eightfold to $215.9 billion.

Venture capitalist Tomasz Tunguz believes history could repeat itself. In one program, he noted that chips are already piling up in warehouses, mainly because the power supply is insufficient to support compute infrastructure deployment. He warned: “At some point, Nvidia’s order growth will stall, simply because the US domestic market doesn't have the conditions to deploy this computing power; when that happens, related equities will face a violent shock.”

After the dust settled in the presidential election, this concern has become even harder to ignore. In fiscal 2026, Nvidia’s revenue from US-based customers was $149.6 billion, accounting for 69.3% of total revenue.

Fiscal 2028 Itself Is Not the Risk Source

In the short term, there might not be an earnings downgrade over the next 12 months. The company has guided for roughly 70% year-on-year revenue growth in fiscal 2028 and said that supply constraints are the main limiting factor; at the same time, customer demand forecasts suggest there is still doubling potential. For the past three quarters, Nvidia’s revenue has exceeded the high end of guidance.

On November 5, well-known finance program host Jim Cramer presented the bull case on his show: if Nvidia’s performance exactly meets expectations, “this 70% growth stock is trading at less than 12x next year’s earnings.” The consensus estimate also supports this growth rate: EPS rising from $9.31 to $15.91, a 71% increase.

Cramer also highlighted the risk: “But if growth completely stalls the next year, then it can't be called cheap—assuming the US approval process for new data centers can’t keep pace.”

In Brown’s view, this trade indeed has an asymmetric risk-reward. However, a simple 5% earnings downgrade next year won’t sink Nvidia by 40%; what could trigger such a plunge would be downgrades to fiscal 2029 earnings expectations—the exact time window both Cramer and Tunguz are worried about. The current 15x P/E has already largely priced in this concern; as long as the fiscal 2028 guidance holds, the low valuation itself acts as a buffer.

Of course, the first test will come on November 17 Eastern Time. Nvidia will report its third-quarter results, with the company previously guiding revenue in the range of $108 billion, give or take 2%. Compared with the quarterly result, management’s comments on guidance for fiscal 2028 and whether US-based data center customers are starting to cut orders could be even more critical focus points.