1) On Tuesday, I wrote about Nvidia (NVDA) CEO Jensen Huang's affair with businesswoman Alice Huang, who worked for a Chinese company called Megaspeed.
I warned investors to stay away from Nvidia's stock because "I believe there will be many more shoes to drop" in the scandal.
In particular, I wrote that short seller Culper Research's May 13 report "made a compelling case that Megaspeed is a front company – likely one of many – established to circumvent U.S. sanctions and funnel Nvidia's most advanced chips to China."
Sure enough, buried in this salacious Wall Street Journal article is the first media coverage I've read that confirms this bombshell revelation:
The U.S. and Singapore are scrutinizing Megaspeed, a Singapore-based cloud-service provider, over allegations that the company potentially transshipped billions of dollars in export-restricted Nvidia artificial-intelligence chips to China. Megaspeed sent some Nvidia chips to China despite U.S. laws barring such exports, said people familiar with the matter.
And this WSJ article raises questions about how Nvidia may have changed its financial reporting to cover it up:
As recently as the summer of last year, Singapore was officially one of Nvidia's biggest markets, generating 22% of the chip maker's revenue. Then, practically overnight, it disappeared from the company's financial disclosures...
The timeline indicates that Nvidia altered its methodology for reporting the geographic breakdown of its revenue shortly after placing Megaspeed International on an internal block list. It isn't clear if the two are related, but the shift had the effect of removing visibility into Nvidia's sales tied to Singapore. That is the home to Megaspeed, the cloud-computing company embroiled in a sex-and-espionage scandal that has engulfed Nvidia and its chief executive.
That's not all. Yesterday, the New York Times reported on another affair Jensen Huang was having with a senior executive (who's also married):
Jensen Huang, the leader of Nvidia who is under investigation for an affair with a woman who U.S. intelligence determined is a Chinese spy, also had an extramarital relationship with an executive who reports to him, according to five people who worked at the company.
The relationship, which has not been previously reported, was with Kimberly Powell, Nvidia's vice president of health care...
This shouldn't come as a surprise to anyone. If you find one ant in your kitchen, you can be sure there are more...
Nvidia's board had already opened an investigation after the first affair came to light. Now, as a result of the additional controversy, Huang is out as CEO. This WSJ article has all the details:
Chief Executive Jensen Huang has resigned after two extramarital affairs, including one with a suspected Chinese spy and another with an employee.
The company said Thursday that finance chief Colette Kress had agreed to serve as interim CEO until a permanent successor is named. The board is starting a search for the company's next CEO and will consider internal and external candidates.
I would continue to avoid the stock for two reasons. First, without Huang, the company will likely be rudderless. As the article notes:
With about 60 direct reports, Huang has said he doesn't believe in succession planning and that leaders should continuously pass on knowledge and information as they have it. It wasn't immediately clear who would succeed him.
Nvidia's latest proxy statement warns that it is "highly dependent on the services of our longstanding executive team" and that the failure to ensure effective succession planning could "hinder our strategic planning, execution, and long-term success."
Second, if the internal and external investigations officially confirm what I think is highly likely – that the company was selling billions of its most advanced chips to obvious sham companies funneling them to China – Nvidia could be in big trouble (and Huang could go to prison).
2) As I recounted in my past few e-mails, my dad had a pacemaker implanted on Monday and was discharged from the hospital on Tuesday. He's doing better every day, though he's still very weak.
Here's a picture of us yesterday at our extended family's home on Lake Sunapee, New Hampshire, where my parents are staying for roughly a month until the doctors tell them it's safe for my dad to return home to Kenya:
The doctors recommended a "dual-chamber pacemaker" that they would permanently implant under his skin on his chest. They gave us a choice of pacemakers made by three large American medical-device makers: Medtronic (MDT), Abbott Laboratories (ABT), and Boston Scientific (BSX).
Here's my dad holding an Abbott one, which the doctor happened to have with him as he explained the device:
We ended up choosing the Medtronic one because it's the one my dad's cardiologist in Kenya is most familiar with. That's not surprising, given that Medtronic was the first company to commercialize implantable pacemakers in 1960 and has been the market leader ever since.
But over the past 20 years, Medtronic's stock has performed poorly – only rising 108%. It's the same story with Abbott and Boston Scientific, which have risen 139% and 185%, respectively.
All three stocks have badly trailed the S&P 500 Index's 448% return. And nearly all of their underperformance has occurred since the bottom of the COVID-19 crash in March 2020, as you can see in this chart:
I won't analyze Boston Scientific here because I already did so on July 1. And I shared the bull and bear arguments for the stock on July 2.
Back then, I concluded that "the combination of strong historical financials and a depressed valuation makes this a very interesting stock... [which] looks compelling today at less than 13 times this year's earnings." Since then, the stock is flat – and still looks attractive.
Next, let's take a closer look at Medtronic...
(Note: The charts below are in calendar years, but the company's fiscal year ends in April of the next year. For example, 2025 in the charts ended on April 24, 2026.)
Medtronic is a very good business, with high (albeit slightly declining) gross and operating margins over the past two decades:
Revenue and operating income largely stagnated after the company's huge $50 billion acquisition of Covidien in 2015, though there has been a bit of an uptick in recent quarters:
Medtronic generates gobs of free cash flow ("FCF"), but there has been little growth over the past decade:
It has used its FCF to pay a steady dividend (the stock is currently yielding 2.8%), buy back a modest amount of stock, and make lots of small acquisitions. Plus, it used $15 billion of cash for the Covidien acquisition – the rest was paid in stock:
As a result of the share repurchases, most years have seen a steady decline in diluted shares outstanding (averaging 1% annually), with a big jump in 2015 due to the acquisition:
Medtronic's net debt spiked to pay for Covidien, but has remained steady since then:
Turning to valuation...
As of yesterday, Medtronic has a $124 billion market cap and, adding the $20 billion in net debt, a $144 billion enterprise value.
At yesterday's closing price of $101.61, the stock is trading at 17 times this year's consensus analysts' estimates of $5.98 per share and 15.9 times next year's estimate of $6.41 per share.
Those price-to-earnings (P/E) multiples are roughly at the midpoint of where the stock has traded over the past 20 years:
I think the stock is trading at a fair multiple for a very high-quality – but very slow-growing – business. So I'm not interested in Medtronic at today's price.
But my team and I will keep an eye on the stock. If we ever decide it's a buy, Stansberry's Investment Advisory subscribers will be the first to know, as always. You can become one by clicking here.
Tomorrow, I'll take a look at Abbott Laboratories, so stay tuned...
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.