Editor’s note: This article was published before Jensen Huang resigned as president and chief executive of Nvidia on 12 November. For the latest, read Jensen Huang resigns as Nvidia chief; shares open down 10%.
Nvidia’s share price has been in free fall, with a new drop yesterday following Monday’s 4.3% loss.
The stumble of the semiconductor darling Nvidia started when the board opened an independent investigation into chief executive Jensen Huang following reports that he was targeted by a suspected Chinese intelligence operation.
Huang acknowledged a personal relationship with the woman involved, and the board said it had no reason to believe company secrets were compromised. On Wednesday, a second reported relationship came to light. Shares dropped a further 8.6% in after-hours trading at the time of writing.
Ben Barringer, head of technology research at Quilter Cheviot, said this second “incident of poor judgement” means markets are now coming around to the idea that Huang will have to relinquish control and are starting to question what the structure of Nvidia looks like moving forward.
At the moment, the board has no chair and no named successor.
Charu Chanana, chief investment strategist at Saxo, said that “governance is now an investment risk”.
“Huang has transformed Nvidia from a small chipmaker into a multi-trillion-dollar company. His leadership is a competitive advantage, but the absence of a publicly identified successor creates key-person risk.”
For investors, Nvidia’s trajectory is a main concern, as it is so large in indices that most global and Nasdaq funds hold it by default. Below, strategists set out who gains when Nvidia stumbles and what they would do before its results on 17 November.
Who gains when the leader stumbles
Nvidia’s setback has allowed its main competitors to catch up. Advanced Micro Devices (AMD) gained more than 13%, Micron Technology rose around 6%, and the semiconductor index climbed nearly 7% in one trading session, as shown in the chart below.
Nvidia, AMD and Micron share prices over 5 days
Source: Google Finance
“When the broader AI trade rallies but its biggest leader is left behind, that divergence is worth watching,” said Chanana. “That divergence suggests investors are starting to price in risks specific to Nvidia rather than simply reassessing the entire AI investment theme.” Still, she said, “one [bad] session does not establish a lasting change in market leadership”.
For Barringer, Nvidia has got to a size where any move it makes will have a ripple effect across the industry and wider markets.
“Nvidia is heavily involved in the financing of neo-cloud providers [companies that rent out AI computing power], so we are likely to see some volatility in that space going forward,” he said.
However, he was convinced that whatever happens from here is “unlikely to damage Nvidia in the short-term”, as the order book “remains strong” and performance “is being delivered”.
Nvidia now sits at a 17-month low, down 33% from its record high, Chris Beauchamp, chief market analyst at IG, noted.
His gauge for how the market will hold up is the stock market listing of Anthropic, which filed for its flotation last month.
“The future of the rally in tech stocks now hinges on whether investors care more about the likely demise of Jensen [Huang], the so-called Godfather of AI, or the success of the Claude maker’s listing,” he said.
“Nvidia is looking quite attractive from a valuation perspective, if you’re prepared to sit out some substantial near-term volatility. All this might not matter so much if Anthropic’s listing goes well. Markets need good news stories to keep moving forward, and this might just help everyone put Nvidia’s troubles behind them, just so long as no more unfortunate Huang stories emerge.”
Susannah Streeter, chief investment strategist at Wealth Club, struck a more cautious note. Given Nvidia’s size, “the intense speculation [on its future] looks set to drag down the wider tech sector when trading begins on Wall Street, with the Nasdaq and S&P 500 set for declines,” she said.
“It also highlights the risks of having so much power concentrated in one individual at a company sitting at the very heart of the global AI boom, especially given that there does not appear to be a succession plan in place.”