Jensen Huang is out as president, CEO, and board member of Nvidia (NVDA). The board announced the change, effective immediately. CFO Colette Kress takes over as interim CEO. One board member was raised to chairman of the board.
Market reaction
NVDA shares fell more than 9% in real time, down about 10% in pre-market trading, hitting over one-and-a-half-year lows. The stock had pulled back from all-time highs reached a month ago. The Wall Street Journal leaked the day before that Huang would be relieved of his duties, which likely drove overnight board discussions. The company terms the move a resignation.
The reaction looks severe but unsurprising given the leak. This could be a "throw the kitchen sink out" event, meaning a full flush of bad news that clears the way, or a wash-out event that lets the stock reset.
The leadership question
Huang started the company 40 years ago and is seen as being Nvidia itself. The board statement said the company has been around 33 years and credited Huang's contributions as profound. The core investor worry: how much of Nvidia's success was Huang personally, and what effect his exit has on partnerships and sales.
Kress has been with the company for years. The board said she helped lead Nvidia through a period of extraordinary growth and has deep knowledge of its business, customers, operations, and financial position. Kress said Nvidia's strength comes from its people and that she is committed to building on the foundation Huang created. The open question is whether she can innovate and hold the partnerships Huang built during the AI boom, including the circular financing arrangements, where Nvidia invests in other companies that then buy its chips.
Analysts said overnight that Nvidia has a deep bench, with hundreds of top executives who could potentially take over. The choice ahead: promote from inside or hire a search firm to find an outside CEO. A useful comparison is Apple (AAPL), where many doubted the company after Steve Jobs, yet Tim Cook took over and did well.
Competition and the business
Rival chipmakers moved on the news. Broadcom (AVGO) and AMD (AMD) shares reacted, and both may pick up market share. Nvidia is not going away and remains the leader and top innovator in highly specialized AI chips. It is moving into CPUs with Vera Rubin, which could take market share from Intel (INTC) and AMD (AMD).
Valuation and earnings
If NVDA opens down 10%, it trades at barely over 10 times next year's earnings estimates on a forward basis, against 18 times for the S&P 500. The stock is cheap on valuation, but a dark cloud hangs over it until a permanent CEO is named.
Earnings come next Tuesday. The reported numbers will likely be strong, but the key for investors is the forward guidance. Open risks: lost sales, cut guidance, and disruption to the circular investment deals with other companies. Stability is the main need going forward.
