Nvidia board weighs Huang’s future as shares tumble

Nvidia is working with an outside firm to identify potential replacements for chief executive Jensen Huang.

In late US trading on Wednesday, Nvidia’s shares tumbled as much as 10 per cent following a report by The Wall Street Journal that Nvidia’s board was preparing to oust Huang from his role.

The board’s reported search for a replacement has come following details emerged of two extramarital affairs, including one with a suspected Chinese spy and another with an employee.

The board is planning to meet as soon as Wednesday to determine his future, people familiar with the matter said.

His departure would bring down the curtain on an era during which he stoked the global artificial-intelligence boom and became a geopolitical star. It would leave one of the world’s most valuable companies in need of a new leader.

The company has tapped an outside firm to identify potential candidates following reports of multiple extramarital affairs by Huang.

For more than three decades, Huang’s has taken a hands-on role in shaping Nvidia’s strategy.

Beyond developing the AI accelerators that now dominate the artificial intelligence landscape, Huang has turned the company into an industry kingmaker that oversees a sprawling web of customers, suppliers, partners and investments.

The upheaval at the company, scheduled to report its quarterly results on November 17th, risks further shaking confidence in the AI trade that’s driven much of this year’s global equity rally before coming under increased scrutiny from investors over stretched valuations and the scale of spending on AI.

Wall Street sentiment toward Nvidia is starting to crack. Bernstein was the latest firm to downgrade the stock, cutting its rating to market perform from outperform while lowering its price target to $200 from $400. Baird earlier downgraded the shares to neutral, while Morgan Stanley removed them as a top pick.

The estimated fair value of Nvidia without Jensen Huang will fall by about 25 per cent to $225 per share versus an estimate of $300 per share if he stays as chief executive, according to Yorkville Ives, adding that the technology world and the board is quickly realising the situation is getting worse by the day as more news comes out.

Last week, tech stocks around the world plunged on worries that the Democrats’ sweep of Congress in the US midterms may lead to tougher oversight of the AI industry.

“Nvidia’s latest developments could weigh on sentiment across the broader AI trade, but we see selective opportunities emerging among semiconductor companies that can offer credible second source alternatives for critical AI chips,” said Gary Tan, a portfolio manager at Allspring Global Investments.

On Wednesday, US stocks rallied amid optimism over the AI trade as shares of CoreWeave surged 25 per cent on an upbeat outlook, OpenAI’s quarterly revenue reached $10 billion and Anthropic initial public offering was said to be multiple times oversubscribed. The Nasdaq 100 jumped 2.3 per cent while the S&P 500 climbed 1.3 per cent.

“Renewed AI optimism following CoreWeave’s stronger-than-expected earnings is being offset by the worsening management crisis at Nvidia,” said Tan Altundag, an investment manager for emerging equities at Pictet Asset Management. - Bloomberg