Nvidia shares fell 34% from early October, dropping from $243 to $161, after revelations about CEO Jensen Huang’s romantic relationship with an alleged Chinese spy and his November 12 resignation. The decline erased nearly $2 trillion in market value and reduced the price-to-earnings ratio from 30 to 20. Despite sales growth of 26% and gross margins of 75%, the market expects Nvidia’s profitability to weaken following Huang’s departure, given the company’s reliance on its leader and competition from AMD, Google, and Amazon. Nvidia generated $105 billion in free cash flow over the past four quarters, but has reduced share buybacks and is investing heavily in its customers, a strategy that could accelerate commoditization and further erode margins.
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