Nvidia shares fell sharply after chief executive Jensen Huang stepped down, pushing the company’s weekly market-value losses beyond £400billion.
The abrupt resignation sent shockwaves through global markets. The circumstances surrounding Huang’s departure have prompted a wave of unverified reports and intense scrutiny, while further claims emerged hours after the announcement.
Nvidia stock dropped as much as 14 per cent in early trading yesterday before recovering to close 4.3 per cent lower. The decline left the shares down 11 per cent over the week.
In just four trading sessions, the fall erased around $490billion, or £409billion, from Nvidia’s market value. Veteran City commentator David Buik described the episode as one of the costliest corporate leadership crises ever seen.
Nvidia’s share price has now fallen 30 per cent from its early-October peak, affecting UK savers whose pensions and stocks-and-shares Isas invest in funds holding significant positions in the chipmaker.
As the world’s second-largest company, Nvidia represented about 5 per cent of global stock-market value at the start of October. That makes it a major component of the international index funds widely used by British investors.
Former Nvidia chief executive Jensen Huang has stepped down amid intense scrutiny surrounding the company’s leadership
Chief financial officer Colette Kress, who joined Nvidia in 2013, will serve as interim chief executive while the board searches for a permanent successor.
Huang’s sudden exit removes the chipmaker’s most prominent advocate at a crucial moment for the artificial-intelligence industry. The company has not yet set out a detailed timetable for appointing a permanent replacement.
It also raises questions about the future direction of the business Huang transformed into an AI powerhouse during more than three decades at its helm.
Nvidia has lost more than 30 per cent of its value, equivalent to roughly $1.8trillion, since its shares reached a recent peak before investor enthusiasm for AI began to cool.
‘It leaves the company rudderless. He was so central to all their strategy, and it just highlights that there’s quite a void there,’ said Kathleen Brooks, research director at XTB.
‘It does throw the AI trade into a bit more confusion. You don’t have someone who was a cheerleader for AI in the same way that Jensen Huang has been.’
Despite the turmoil, Nvidia remains a favourite among Wall Street investors, with many brokerages continuing to rate the stock a ‘buy’ or ‘strong buy’.
That confidence has nevertheless begun to weaken. Several analysts have reduced their recommendations or price targets in recent days as they assess the effect of the leadership change.
Morgan Stanley and Bank of America Global Research removed Nvidia from their top-pick lists this week, while Wells Fargo and Citigroup lowered their price targets.
Tristan Gerra, an analyst at US investment firm Robert W Baird, cut his price target from $500 to $200.
Analysts at US investment bank TD Cowen said: ‘Huang’s exit is shocking, unprecedented and sad. We don’t know the path forward for Nvidia. We remove Nvidia as a top pick given the uncertainty but want to let the dust settle before evaluating our investment thesis.’
Nvidia chief financial officer Colette Kress has assumed interim control as the company begins its search for a new chief executive
As Nvidia recovered part of its earlier losses, Chris Beauchamp, market analyst at IG, said: ‘It’s usually best to rip off a plaster rather than prolong the agony.
‘Jensen’s decision to leave the company he led to global prominence may ultimately be the best outcome for both the stock and Nvidia.’
‘While a Congressional investigation is sure to follow, Nvidia can declare the Jensen era at an end. Rock-star CEOs can be a great help, but they can also become a serious weakness. For Nvidia, it may well be onwards and upwards.’
Shares in rival Advanced Micro Devices rose as investors bet the company could benefit from uncertainty at Nvidia. AMD stock has gained 30 per cent so far this week.
Other global AI stocks came under pressure, however, amid concerns that Nvidia could reconsider the billions of dollars it has committed to financing infrastructure built around its chips.
‘Nvidia has been called the “Bank of AI”. If it has to take a step back because of what’s happening, will that cut off funding to smaller companies that need it? That’s an open question,’ said Joe Saluzzi, co-head of equity trading at Themis Trading.
Why Nvidia matters to Britain’s investors
Nvidia may account for a larger share of your pension than UK-listed companies do. That is why the company’s market turmoil and the departure of its high-profile chief executive could affect British savers, explains Rachel Rickard Straus.
If you have never bought Nvidia shares directly, you may still be exposed to movements in its stock through your savings and investments.
Nvidia has become so large that millions of investors indirectly hold a stake in the business.
Anyone invested in a global, US or technology fund—or paying into a workplace pension—is likely to have at least some exposure to Nvidia.
> Read more: Why Nvidia is affecting our pensions and Isas
The financial impact of the leadership crisis
Jensen Huang has seen his personal wealth fall by an estimated $18billion in less than a week as Nvidia’s share price has plunged.
The former chief executive owns about 3.6 per cent of the company he led for 33 years, leaving his fortune highly exposed to the stock’s performance.
The decline since the leadership announcement has wiped billions from the value of Huang’s Nvidia holding.
City commentator David Buik said the episode ranked among the most financially damaging corporate leadership crises on record.
Huang has lost an estimated $65billion since Nvidia shares reached their October peak. That figure far exceeds a potential pay-off of up to $385million.
Huang did not have a conventional employment contract and was classified as an ‘at-will’ employee, meaning any severance arrangement would need to be negotiated with Nvidia’s board.
He received $36million in compensation last year and had been eligible for bonus shares valued at as much as $440million, although the subsequent share-price fall reduced their value.
At yesterday’s price of $166, those shares were estimated to be worth about $385million.
Nvidia thanked Huang for his ‘immeasurable contributions’ but did not disclose whether he would receive a severance payment.
Before the recent sell-off, Huang’s estimated fortune of $150billion made him the world’s 12th-richest person.
Trump suggests Tim Cook could lead Nvidia
Former Apple chief executive Tim Cook has emerged as a possible candidate to replace Huang after Donald Trump publicly endorsed him for the role.
Cook left the top job at Apple in September after 15 years in charge, during which he oversaw a major expansion in the company’s profits and share price.
It was not immediately clear whether the 66-year-old would consider moving from the world’s most valuable listed company to Nvidia, which currently ranks second.
Donald Trump has suggested former Apple chief executive Tim Cook as a possible Nvidia successor
Cook has experience succeeding a highly influential founder, having taken over from Steve Jobs at Apple.
Trump quickly offered his view on Nvidia’s succession plans in a social-media post.
‘Now that Nvidia CEO Jensen Huang, who has done a fantastic job, has resigned, there is only one man to take his place—Tim Cook of Apple,’ he wrote. ‘A Legend replaces a Legend!’
For now, Kress will lead Nvidia on an interim basis, placing her among the most powerful women in global business.
Before joining Nvidia, Kress held senior positions at Texas Instruments, Microsoft and Cisco. She became part of Nvidia’s leadership team in 2013.
Kress has previously said Nvidia was the smallest company she had worked for when she joined.
The company generated about £3billion in revenue in the year she arrived. That figure has since risen to more than £160billion.
Her immediate challenge will be to present Nvidia’s third-quarter results next week while investors and analysts closely examine the company’s outlook.
Kress said: ‘I am committed to building on the extraordinary foundation Jensen created over the last 33 years.’
Nvidia said: ‘We are initiating a search for a permanent chief executive officer and will consider internal and external candidates.’
Tech industry analyst Dan Ives said: ‘Colette Kress has built enormous credibility internally and externally, and we are big fans of her strategically.’
‘There is also a good chance Nvidia’s board looks to the outside for a CEO.’
‘This could include a host of names, including Tim Cook as a dark-horse candidate in our view, given Nvidia’s global importance to the wider US technology industry.’
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