Bernstein: Why You Absolutely Cannot Bottom-Fish Nvidia Right Now?

Author: Zhang Yaqi, Wall Street Journal

Wall Street's top brokerage Bernstein has downgraded Nvidia's stock rating from "Outperform" to "Market Perform," slashing the target price from $400 to $200. The trigger for this downgrade is not a deterioration in fundamentals, but a management scandal that has swept through the company's top ranks and is still ongoing.

Currently, the scandal involving Nvidia CEO Jensen Huang is spreading, and the company's board has announced the initiation of an independent investigation. The Wall Street Journal further reports that the company is preparing to terminate him. Bernstein analyst Stacy A. Rasgon stated in the report: in light of the new allegations, it is nearly impossible for the board to allow Jensen Huang to remain; even if he stays, the ongoing risk of exposure cannot be ignored.

Against this backdrop, Bernstein believes that although Nvidia's stock price has fallen to a "ridiculously undervalued" level, it strongly advises investors to sit on the sidelines for now. The company's fundamentals are intact, but uncertainty has not cleared—where the bottom of the negative news lies is currently impossible to judge.

Scandal Continues to Ferment, Board in a Difficult Position

The trigger for the incident was a media report that emerged last weekend: Jensen Huang has an inappropriate relationship with Alice Huang. Jensen Huang publicly admitted to this relationship on Sunday, and Nvidia's board immediately announced the initiation of an independent investigation.

However, the situation quickly escalated. According to the latest reports, Jensen Huang also has an inappropriate relationship with a direct subordinate, reportedly Kimberly Powell, the Vice President of the company's healthcare business. Nvidia is currently preparing to oust her.

In this regard, Bernstein assesses: some CEOs have been terminated for far less serious reasons. After the new allegations surfaced, the likelihood of the board retaining Jensen Huang is extremely low; if the board chooses to remain inactive at this point, it would mean that more scandals emerging is just a matter of time, and the risks will further accumulate.

Fundamentals Intact, but Uncertainty Cannot Be Priced

Bernstein emphasizes that this rating downgrade is not due to a pessimistic judgment on Nvidia's business prospects. According to its latest forecasts, the company's data center business growth trajectory remains steep—data center revenue is expected to be approximately $378.3 billion in fiscal year 2026, further climbing to $657.8 billion in fiscal year 2027, and potentially exceeding $918.2 billion in fiscal year 2028. Overall revenue is expected to grow from $406.9 billion in fiscal year 2026 to $690.3 billion in fiscal year 2027, with an annual growth rate of nearly 70%. In terms of earnings per share, Bernstein expects an average non-GAAP EPS of $19.04 for fiscal years 2027/2028 (FY28/29), setting the target price at $200, corresponding to about 11 times the forward P/E ratio, significantly lower than the previous valuation multiple of 21 times.

The report points out that during the management transition period, the company's daily operations should not be significantly disrupted. However, what truly troubles analysts is the successor issue. "Internal promotion or external hire? Who can they find to take over Jensen Huang's position?"—these questions currently have no answers, and any emergence of answers will bring new variables to the market.

"Cockroaches in the Kitchen": Negative News May Not Have Bottomed Out

Bernstein used a vivid metaphor in the report to illustrate its core logic: if you find two cockroaches in the kitchen, the most reasonable inference is not that there are only two cockroaches in the entire kitchen.

Based on this judgment, analysts believe that the current emerging scandal is likely just the tip of the iceberg. What may follow includes not only more internal allegations but also potential government investigations, as well as a series of uncertainties at the business level—such as the fate of Nvidia's previous strategic investments in the supply chain, various guarantees, and remaining commitments, all face uncertainty. Meanwhile, some competitors' stocks have recently risen due to related news and may continue to benefit.

Rasgon candidly admitted in the report that he is "quite conflicted" about this judgment and fully understands the logic of buying on dips. But his intuition tells him that the depth of this well has not been fully explored. For this reason, Bernstein has chosen to temporarily step back and observe from the sidelines.