The resignation of Jensen Huang from his role as CEO of chipmaker Nvidia has introduced a new source of uncertainty into one of the market’s most consequential companies, testing whether investor enthusiasm for artificial intelligence can withstand a leadership and governance crisis at the center of the theme.
Huang’s resignation marks the end of a 33-year tenure at the company he co-founded. His departure followed reports about extramarital relationships, including one with Alice Huang, a former executive at Singapore-based cloud computing and data center firm Megaspeed International, who U.S. officials reportedly suspected of having links to Chinese intelligence, as well as two subordinates.
Shares of Nvidia were down 14% over the past five days—and are down more than 30% since the company’s peak in early October.
“If it turns out that, in fact, Alice was working for the Chinese government and was somehow getting information from [Jensen Huang], passing it down to the Chinese government, that would be a serious infraction of national security,” says Mark Anson, CEO and CIO of Commonfund.
Alice Huang was accused of circumventing export bans on Nvidia chips to import them to China. Anson adds if that is the worst she has done, it is not a bad scenario for Nvidia—although the company will certainly face regulatory scrutiny, something which could weigh on the fundementals of the company.
“I think then you’d have a huge series of hearings, but with Nvidia right in the middle of all of it, and that of course would bog down the company, … adding a layer of regulatory constraint and oversight. … I think that would not only hurt its stock price going forward but potentially slow down chip manufacturing,” Anson says.
Huang’s resignation comes at a time when the artificial intelligence theme—particularly represented in the performance of a handful of companies in the S&P 500—has driven the indexes’ concentrated performance.
Some institutional investors have become cautious of the increasing crowding of the AI theme. The California Public Employees’ Retirement System, which manages $637 billion in assets, recently trimmed more than 25% of its Mag 7 exposure in a bid to reduce equity concentration risk, deputy CIO Anton Orlich told the Financial Times.
“The questions we’re getting from our clients are less about, ‘What’s going on in Nvidia?’ It’s more, … ‘Is this going to bring rational valuations back in?’” Anson says. “Does that mean that the S&P may decline a little bit? Or the PE multiples associates with those companies, will those come back to a more normal valuation, which we think will happen.”
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Tags: Artificial Intelligence, Nvidia