Huang Resigns as Nvidia CEO; Shares End 4.3% Lower After Early Slump

Synopsis

Nvidia's chief executive, president and director Jensen Huang stepped down on Thursday following allegations that he had an affair with a woman believed to be working for China by U.S. officials. The allegations are unproven and the board has not disclosed its investigation’s findings. AMD and Broadcom rose on the day as shares declined by nearly 14 per cent at both the opening and closing levels, and by 4.3 per cent at the close. Colette Kress, the CFO, serves as interim CEO.

In a little over a month, Nvidia’s shares fell by more than a fifth, and now its chief executive is gone. Founder and former CEO Jensen Huang, 63, is stepping down. He stepped down Thursday as the CEO, president and director. Harvey C. Jones, a former CEO of Synopsys, is the first-ever chair of the board. Colette Kress, the current CFO, will serve as interim CEO. Nvidia CEO Jensen Huang steps down +2.Tesla's Elon Musk steps down as CEO of the company.

What is alleged

Following reports of multiple extramarital relationships, one with a presumed Chinese agent and another, according to a later report, with an Nvidia executive directly reporting to Huang, the departure came as no surprise. The board said it opened an independent investigation "in absence of any reason to believe that national security or company secrets have been compromised. Huang has denied compromising national security or company secrets, and China denies the espionage claims, calling them smears.

These remain allegations. The board has not indicated what it concluded in its investigation and didn’t provide a reason for his resignation on Thursday. “Jensen's impact on NVIDIA is enormous,” it says.

The market reaction

Shares of Nvidia tumbled 14 per cent at the opening bell. The stock fell as much as 14.3 per cent to $148.80. It bounced back during the trading session. Nvidia was down 4.3 per cent from its levels on the day, on the low end of the session. It's been trading at a price of 12 times expected earnings, a valuation level that it hasn't reached since 2012, and it has just fallen sharply from its peak valuation on October 6. Nvidia stocks fall 3% at the open after it's CEO, Jensen Huang, steps down.

Rivals gained. An index of semiconductors tumbled 0.5 per cent, while AMD increased 5.9 per cent and Broadcom 5.5 per cent. However, shares of Chinese tech companies that rely on Nvidia chips have tumbled as Alibaba tumbled 7.1 per cent in US trading. “Tuz of Chase Investment Counsel said asiaone.”

“There's a lot that we don't know in all of this.”

Nvidia is in the middle of the AI build-out. In 2022, the company was valued at $305 billion; the New York Times reports that by 2026 it had nearly reached a valuation of $6 trillion. The ouster triggers a search for a permanent replacement, in absence of a succession plan at the company. The board will be considering internal and external candidates.

The episode has also put Congressman Commerce Secretary Howard Lutnick on trial given concerns about how the administration has managed the sale of chips to China.

The India connection

The impact extends to Indian stocks. The Nvidia's share of the Motilal Oswal Nasdaq 100 ETF is the second highest at 8.02 per cent of the holdings. This week, the Nifty IT index dropped 3.2 per cent after investors pulled out of AI-related stocks. Friday's Indian indices were weighed down by an Nvidia-related sell-off on Wall Street.

What to watch

The following dates are set. Nvidia will announce its third-quarter earnings on Tuesday, Nov. 17, five days after the resignation. Investors will be interested in the board's findings, a transition timeline and if there is any adjustment to the export policy relating to China.

The company has just lost its founder-chief when sentiment is at its highest risk. For the first time, it will be the first earnings call without him.