When I closed my laptop last Friday (6 November) when the stock market closed, I didn’t expect to be writing this week about the impact of an affair on Nvidia (NASDAQ:NVDA) stock. Yet here we are, with news surrounding CEO Jensen Huang’s relationship with a woman suspected of having links to Chinese intelligence.
With the stock falling 4.3% yesterday (9 November), wiping around $190bn off its market-cap, should I be concerned about a further fall?
Taking a deep breath
So far, Huang has acknowledged having an affair. Reports identify the woman as Alice Huang, with US intelligence officials reportedly suspecting she was working on behalf of China, although Beijing has rejected the allegations.
Nvidia’s board has launched an independent investigation, while US authorities are also examining the situation. Importantly, the company has stated that it currently has no reason to believe sensitive information or national security has been compromised. That certainly helped in preventing a much steeper fall in Nvidia stock yesterday.
For me, the distinction between a personal scandal and potential corporate wrongdoing is crucial. The former might damage Huang’s reputation, but the latter could have much more serious consequences for shareholders.
Why I’m concerned
My biggest worry is just how dependent Nvidia has become on Huang’s leadership. He’s been instrumental in transforming the business into the dominant supplier of AI chips. His relationships with everyone — from customers right through to policymakers — is a major competitive advantage.
Should the investigation result in Huang stepping down, I think investors would understandably question whether Nvidia stock could maintain its momentum. In that scenario, I think the stock could fall further in the coming months.
There’s also the China angle. Nvidia already faces restrictions on exporting advanced semiconductors to the country. Allegations involving potential intelligence gathering could encourage Washington to impose even tighter controls. Naturally, that could hurt revenue and cause investors to lower expectations for the stock value and future profitability.
Overblown worries
Despite these concerns, I don’t think investors should overlook Nvidia’s underlying business. After all, demand for AI computing infrastructure remains substantial, and I only see this increasing. Nvidia has such a competitive position here, so even with this scandal, it doesn’t immediately change the dominance in the sector.
Also, if we take a step back, the latest controversy doesn’t automatically change how many chips Microsoft, Amazon or other hyperscalers need.
Even if Huang’s position became untenable, Nvidia would retain its engineering expertise and extensive customer relationships. As I’ve noted in the past when great leaders pass on, such as Steve Jobs at Apple, the company is bigger than any single person.
So on balance, I wouldn’t panic-sell Nvidia shares purely because of the affair revelations. However, I wouldn’t dismiss the situation as irrelevant either. If Huang has to step down and the investigation finds damaging evidence, I think Nvidia stock could fall further in the coming weeks.
Yet in the long term, I think the company can survive without Huang, so I’d consider buying the stock on any further sharp dip.
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Jon Smith has no positions in the shares mentioned.
This story originally appeared on Motley Fool
