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Nvidia's board of directors met to decide whether to remove CEO Jensen Huang. The company itself, the world's leading supplier of chips for artificial intelligence, is meanwhile trying to cope with the consequences of reports of two extramarital affairs of its leader: Nvidia shares are falling, the company has lost more than half a trillion dollars since the beginning of the scandal.
According to Nvidia's bylaws, Huang can be removed "with or without cause" by a majority vote of directors. Nvidia has 11 board members, all of whom except Huang are considered independent.
On Sunday, Nvidia's board of directors expressed confidence in Huang and his leadership team. However, the day before the company hired a major law firm to investigate Huang's affair with a woman allegedly working for Chinese intelligence. The FBI is also investigating the case.
Another extramarital affair?
On Wednesday, the New York Times reported that Huang also had an extramarital affair with a company executive who reported to him. According to the publication, this is Kimberly Powell, Nvidia vice president of healthcare; The newspaper cited five people who worked at the company for this. Powell herself, whom the newspapers approached for comments, did not talk to them.
The Wall Street Journal and Financial Times reported that this prompted the board to reconsider Huang's continued tenure as the company's CEO.
US lawmakers have also begun pushing for tighter restrictions on chip exports to China.
Beijing has accused the US of using false accusations of espionage as a pretext to impose a technology blockade on China. “With regard to the so-called accusations of espionage on the part of China, we have already clearly stated our position,” Foreign Ministry spokeswoman Mao Ning said at a press conference. — China's scientific and technological progress is based on independent innovation and open cooperation. The US must stop fabricating so-called spy narratives in search of excuses to impose technological blockades.”
The market is not welcoming
Nvidia shares fell almost 7.5% in after-hours trading, and since the scandal began, the capitalization of one of the world's most valuable companies, which at its peak was about $4.5 trillion, has lost $600 billion.
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“The market is starting to price Nvidia's share price into the departure of its founder as a likely outcome rather than as a highly unlikely risk,” Armina Rosenberg, a portfolio manager and co-founder of Minotaur Capital, which owns Nvidia shares, told Reuters. “Losing Jensen would be a real blow.”
In a sign that the market believes Jensen's departure is likely, forecasting website Polymarket has seen the likelihood of Huang resigning or being removed from his role before the end of the year jumping to 88%.
Leading investment firms have downgraded their ratings on Nvidia shares amid growing corporate governance concerns surrounding the possible ouster of CEO Jensen Huang.
Financial firms Baird and Bernstein Research lowered their forecasts for Nvidia shares.
Bernstein lead analyst Stacy Rasgon slashed the stock's price target by half. "Our gut feeling is that we probably haven't yet fully grasped the depth of what might be revealed here," he wrote.
Photo credit: Bloomberg via Getty Images
Citi also lowered its target price for the stock. “The leadership transition puts pressure on the stock given its key role in setting strategy, shaping product vision, maintaining customer relationships and bolstering investor confidence,” Citi analysts wrote.
Analysts also warn that potential restrictions on chip sales to China and data centers in Southeast Asia could hurt near-term sales.
A rating downgrade signals investors to exercise caution due to looming risks. However, most brokerages still recommend buying Nvidia shares.
Investors and analysts say that while demand for Nvidia chips is unlikely to slow down in the near term, a broader range of companies that rely on Nvidia could be hurt, mainly customers building data centers that will use its chips.
“They finance their clients. In booms or bubbles like these, sometimes all it takes is a slowdown in growth for things to go into a bust,” said Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore.
The Heart of Artificial Intelligence
Nvidia is considered one of the most important companies behind the artificial intelligence boom: it is the sole manufacturer of computer chips used in AI tools.
These chips are critical to all kinds of technology, from video games and autonomous vehicles to huge data centers and cloud servers.
But most importantly for the AI arms race, these chips are used to power artificial intelligence systems, including large language models and generative AI systems.
The US's biggest competitor in the race to build the most powerful artificial intelligence systems is China, and Washington will limit exports of Nvidia's most advanced chips to Beijing starting in 2022.
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The US justifies export restrictions on national security grounds, arguing that such exports could bolster China's military capabilities, although some restrictions have been eased under President Trump.
Huang's possible departure will lead to a vacuum in the company's leadership. Huang, 63, who owns about 3.6% of Nvidia, has no obvious successor. He personally controls dozens of major managers, thus tightly managing the company.
On Wednesday, Bloomberg, citing a source familiar with the situation, reported that Nvidia's board of directors is working with an outside company to find potential candidates to replace Huang. Among his possible successors, the favorite is Ian Buck, who oversees Nvidia's data center business.
Congressmen are outraged
Three Republican committee chairmen - Brian Mast, John Moolenaar and Rick Crawford - asked Jensen Huang to hold a closed briefing on November 18.
Wednesday was the deadline by which he had to agree or propose another date.
They want answers to questions about his relationship with Alice Huang, an alleged Chinese intelligence agent, as well as Nvidia's protections against foreign espionage.
Moolenaar warned that if Jensen Huang does not agree to the briefing or does not offer an alternative date, a subpoena will likely follow, requiring him to appear before Congress.
In announcing the investigation Sunday, Nvidia's board of directors said it had no reason to believe national security or corporate secrets were compromised. But since then the situation has changed.
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Jensen Huang's close relationship with Trump is one reason why the Alice Huang case could pose a threat to US national security.
According to the Guardian newspaper, the two have met at least seven times since the start of Trump's second term. Huang had the opportunity to directly discuss AI and processor supply policies with the president.
Reuters notes that Jensen Huang was a frequent guest at the White House with Donald Trump; More recently, he even attended a state dinner in honor of the visit of Chinese President Xi Jinping. Their relationship seems to go beyond formal occasions - they have each other's personal phone numbers.
On Monday, Trump said he spoke to Huang on the phone and believed him when he swore he had "no idea" that Alice Huang might be passing information to China: "He's an honest man, and I have every confidence he'll be fine."
After this, the US President did not comment on the situation surrounding the head of Nvidia.
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