Nvidia Now Trades Cheaper Than Toilet Paper Maker as AI Sell-Off Deepens

Nvidia, the chipmaker at the centre of the artificial intelligence boom, has become cheaper than the company behind Cottonelle toilet paper and Kleenex tissues, in a striking sign of how quickly Wall Street sentiment towards artificial intelligence stocks has shifted.

The chipmaker's forward price-to-earnings ratio fell to 15.2 on Thursday, 5 November, below Kimberly-Clark's 15.5, according to Koyfin data. The comparison comes as investors retreat from high-growth technology stocks and increasingly favour businesses selling everyday household essentials.

Nvidia shares dropped 7.7% to $184.68 (about £137.22) in afternoon trading, wiping approximately $370 billion (about £275 billion) from its market value. The stock has fallen 24% over the past month and is down around 3% for the year.

Toilet Paper Stocks Are Suddenly Commanding a Premium

Kimberly-Clark, whose brands include Scott, Kleenex and Huggies, is not the only consumer staples company now valued more highly than Nvidia.

Of the 33 companies in the State Street Consumer Staples Select Sector SPDR Fund with available earnings forecasts, 22 have higher forward price-to-earnings multiples than the chipmaker. The group's median multiple is 17.1, while its average is 20.6.

Procter & Gamble, which makes Tide detergent and Crest toothpaste, trades at 23.7 times expected earnings. Colgate-Palmolive sits at 24.8, while Church & Dwight, the company behind Arm & Hammer, commands 27.9.

That means investors are paying roughly 35% more for a dollar of P&G's expected earnings than for a dollar of Nvidia's.

The reversal reflects a growing appetite for predictable demand. People still need toothpaste, tissues and toilet paper regardless of how much companies spend on artificial intelligence.

Political Uncertainty Adds To AI Investors' Worries

The latest sell-off accelerated after Democrats' sweeping midterm victories raised questions about future data centre construction. Opposition to the facilities' electricity and water consumption has increasingly become a political issue, potentially complicating plans for the infrastructure needed to support AI expansion.

Investors are also watching developments in China. Reuters reported on Thursday that approximately 600,000 Nvidia H200 chips were sitting in Hong Kong as Beijing withheld import approvals.

The pressure has spread throughout the semiconductor sector. The VanEck Semiconductor ETF fell 9.4% on Thursday and has lost 28% over the past month.

Meanwhile, defensive stocks have attracted buyers. The consumer staples ETF has gained 12.8% over the past month and 17.7% this year, while Kimberly-Clark rose 0.8% on Thursday.

Nvidia's Earnings Outlook Tells a Different Story

The lower valuation does not necessarily mean Nvidia's business is deteriorating at the same pace as its share price.

Forward price-to-earnings ratios compare a company's current share price with projected earnings. Nvidia's multiple has fallen partly because its stock has dropped, but also because analysts continue to raise their earnings expectations.

The company is expected to report third-quarter results on 17 November. Analysts forecast earnings of $2.48 (about £1.84) per share, compared with $1.30 (about £0.97) a year earlier, while revenue is projected to reach $109.17 billion (about £81.1 billion), nearly double last year's $57.01 billion (about £42.4 billion).

Wall Street remains divided, meanwhile. Analyst Dan Ives warned semiconductor stocks could fall another 10% to 12%, while Fundstrat's Tom Lee described the AI sell-off as an 'overreaction' and suggested technology shares could rally if investors return before the end of the year.

Nvidia still carries a Buy consensus rating, with an average price target of $341.88 (about £254) from 30 analysts.

For now, the market is placing a higher valuation on the dependable demand for household staples than on the company at the centre of the AI boom. Nvidia's 17 November earnings report could offer the next major test of whether that shift in sentiment has gone too far.