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Nvidia (NASDAQ: NVDA) has been a core holding within my Stocks and Shares ISA for many years. A cornerstone of my confidence in the stock has been visionary CEO Jensen Huang, who has transformed the company from a niche video gaming hardware business into one of the largest and most important tech businesses in the world.
However, it now looks like there’s a very real chance that Huang could be dismissed, after the CEO had an extra marital affair with a suspected Chinese spy (and possibly another employee at Nvidia as well). This begs the question – should I sell the stock from my ISA if Huang goes?
So many questions…
The Nvidia/Huang mess is a really complicated situation. To be honest, trying to process it is giving me a headache. Right now, I have so many questions. And very few answers…
There are probably two key questions I absolutely need answers to before I can make a decision in terms of what to do with the stock however. The first is – can the company still have the same level of success without Huang?
What I’m trying to work out here is how influential he is and was in terms of the company’s technology and vision. He’s always been the public face of Nvidia but were there other tech gurus driving the company forward behind the scenes? And if there were, could these individuals lead the company from here?
One name I’ve heard bandied about in recent days is Ian Buck. He’s been with the company for several decades and currently serves as its VP of hyperscale and high-performance computing business.
Apparently, he’s a sharp operator and has strong relationships with Nvidia’s largest customers. Note that he was a key architect of CUDA, the software platform that lets developers write programmes for Nvidia’s GPUs (and keeps customers locked in).
Is he capable of leading the company as well as Huang though? That’s hard to know at this stage.
Replacing that strategic vision… is an enormous challenge.
Futurum Equities’ chief market strategist Shay Boloor
Is the bad news already priced in?
The other big question I have is – is the loss of Huang already priced in? If Nvidia was trading on a sky-high price-to-earnings (P/E) ratio of say 40 today, you’d expect it to take a big hit if he suddenly left.
But it’s not trading at that kind of valuation. Instead, it looks dirt cheap on a P/E ratio of 10 using next year’s earnings forecast.
Given this set-up, and the fact that it’s already about 30% below its highs, we may not see the stock fall further if the boss is fired. We could even see it rally as investors obtain clarity on the situation.
So selling it now could backfire. I honestly wouldn’t be surprised if it rallied 10% if we were to hear that Huang’s gone and the company’s found a replacement.
That said, a risk is that it could struggle to sustain momentum in the medium term. If a ton of brokers were to reduce their price targets in the event of a departure, for example, the stock could be a dud for a while.
My view now
Given all the unknowns, I’m simply going to do nothing for now. However, if Huang does go, I will definitely review my position.
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Edward Sheldon owns shares in Nvidia.
This story originally appeared on Motley Fool
