After Jensen Huang, CEO of tech giant Nvidia, quit yesterday, wealth managers discuss the impact on the firm and the broader effect on the global AI trade.

Jensen Huang, CEO of Nvidia, resigned yesterday after a suspected Chinese spying scandal involving him was revealed. The firm’s board has appointed chief financial officer Colette Kress as interim boss who has been with the company for 13 years.

The stock price of the firm is down 22 per cent following a New York Times report late in October about Huang’s extramarital affair with a woman from another tech company suspected of being a Chinese spy. China has warned that the allegations should not be used as a way of restricting tech sales to China once more. The episode highlights that AI, and the technology associated with it, is significant for national security as well as for civilian reasons. 

Speculation that Huang could be ousted had grown in recent days, weighing on the stock of one of the Big Techs and a major driver of US equity returns.

“Huang’s departure removes uncertainty over whether he stays, but confidence will take longer to rebuild,” Lale Akoner, global market strategist at etoro, said in a note. “My view is that Nvidia’s earnings are better protected than its valuation. Existing orders, customer deployments and production commitments provide continuity, while its financial strength gives the board time to find the right successor.”

“Appointing Colette Kress as interim CEO provides continuity, but investors need clarity on who will lead product strategy and maintain major customer relationships,” Akoner continued. “Huang helped coordinate customers, governments and financing partners behind enormous AI projects. The greater risk is slower new agreements rather than existing business suddenly disappearing.”

Akoner believes that the shares could remain under pressure while that leadership gap is unresolved. “A new CEO may also set more cautious targets, which could unsettle investors even without a deterioration in demand. After such a sharp decline, however, assuming Nvidia’s competitive advantages leave with its founder would be an overreaction,” he added.

Akoner thinks that the next earnings update is crucial. “Stable guidance, on-time deliveries and firm customer commitments would support a recovery in confidence. I would become more constructive as that evidence emerges,” he said. “The board has taken a decisive step; whether it proves positive for shareholders now depends on the transition and how convincingly Nvidia demonstrates continuity in execution.”

Susannah Streeter, chief investment strategist at Wealth Club, also believes that Nvidia’s choice of interim CEO will be seen as a safe pair of hands given that Colette Kress has been at the company for 13 years and she has clearly been brought into steady the ship. “But she lacks global status and is unlikely to be able to forge such deep global commercial ties as Nvidia is set to enter into a period of uncertainty over strategic priorities, pricing, supply agreements and future product commitments,” Streeter said.

“Nvidia has lost a strategic visionary, and it’s set to have repercussions right through the AI trade, given how the chip giant is right at the heart of this technological revolution,” she continued. “Nvidia has become something of a central bank for the AI trade. It is supplying the scarce resource needed to build and run AI, it's financing the build out partly by taking equity stakes in its customers and developing complex financial arrangements with private markets so its influence stretches far beyond its own shareholders.”

“Nevertheless, given its highly dominant position and its deep cash pockets, it has some space to weather the storm but its rivals are set to seize this opportunity to capture some of its business,” Streeter added.

Michael Feldman, portfolio manager at ClearBridge Investments, believes that the long-term AI story remains intact. “Nvidia still has the industry’s most powerful integrated stack across compute, networking and software, and the valuation offers some support. But the stock could move from a Jensen premium to an execution discount until new leadership proves it can deliver,” he said.

With Taiwan Semiconductor Manufacturing Company (TSMC), Samsung Electronics and SK Hynix supplying Nvidea with key components, amongst others, global AI and tech stocks fell on the news. However, Patricia Ribeiro, co-chief investment officer of global growth equity at American Century Investments, remained positive yesterday about the outlook for tech-driven emerging markets in an interview with this news service.

Nvidia’s selloff comes after the Democrats victories in the US midterm elections created significant market volatility in US technology, semiconductor and AI-related companies. The turbulence was driven by concerns that Democratic gains in the US midterm elections could result in more regulation of AI and tighter restrictions on data centre development, potentially slowing the pace of the AI infrastructure build-out. See more coverage here.

Sean Peche, founder and portfolio manager at Ranmore Fund Management, said: "I'm a bear for AI-related stocks. The large technology companies are spending an absolute fortune on AI capex, and I think investors need to be very careful."