Nvidia’s shares took another hit on Thursday as the significant affair and alleged espionage scandal prompted the long-serving CEO Jensen Huang to resign, leading investors to ponder the company’s prospects without his leadership.
Following Huang’s departure as CEO and board member, shares of the AI chip manufacturer plummeted by 14 percent at the market’s opening, but later rebounded slightly, ultimately closing down by 4.3 percent.
The overall market largely withstood the effects of Nvidia’s troubles, with major indexes only experiencing mild losses by the end of the trading day.
Michael Dehal, a senior portfolio manager at Dehal Investment Partners, noted that the elevation of Chief Financial Officer Colette Kress to interim CEO likely contributed to the recovery of Nvidia’s stock.
“The swift appointment of a temporary leader provided reassurance to investors,” Dehal remarked.
However, this represents a significant decline for a corporation that achieved a $5 trillion valuation just a year ago and has lost over $500 billion in value following the scandal involving Huang and an alleged Chinese spy, in addition to more than $1 trillion since its peak in October. While Huang has acknowledged an affair, he has not confirmed if it was with Alice Huang, the individual U.S. intelligence agencies claim is linked to Beijing. Reports have suggested he also had an affair with a company vice president who reports directly to him, according to a New York Times article published on Wednesday.
Nvidia, the prominent American tech firm, has been shaken by claims that its president and CEO Jensen Huang engaged in two extramarital affairs, including one with an alleged Chinese spy. In the wake of his resignation, CFO Colette Kress has taken on the role of interim CEO for the leading chipmaker and AI giant.
This situation presents an unwelcome development for industry observers who are now reassessing Nvidia’s value in the absence of its seemingly irreplaceable founder and leader.
Financial planners and asset managers indicate that such drastic fluctuations could also affect the investments and retirement savings of many Canadians.
As one of the world’s most valuable firms, Nvidia constitutes a significant portion of major stock indexes, where companies with higher market capitalizations receive greater weight.
Due to its size, the Santa Clara, California-based enterprise comprises around six percent of the S&P 500 index and about nine percent of the tech-focused Nasdaq.
According to Dehal, many Canadians invest in index funds through exchange-traded funds (ETFs) that mirror these large indexes, indicating they may be vulnerable to significant fluctuations in Nvidia’s stock price. While mutual funds may also have a technology focus, they are typically more diversified as they are actively managed by financial professionals.
A display on the New York Stock Exchange highlights the decrease in Nvidia’s stock price in New York on Monday. (Yuki Iwamura/Associated Press)
Recently, tech companies have increasingly dominated these indexes, fueled by the AI surge that has enhanced the valuation of firms like Apple, Microsoft, and Google’s parent company, Alphabet. With tech firms now accounting for an estimated 40 percent of the S&P 500, certified financial planner Zainab Williams asserts that investors with basic ETFs may be at risk of significant fluctuations in technology stocks — especially in AI.
“People tend to hold numerous ETFs and believe they are well diversified,” Williams explained. “However, if those ETFs consist of many of the same companies, you are still subjecting yourself to similar volatility.”
Portfolio manager Michael Dehal stated that Huang’s swift exit from Nvidia was ‘reassuring to investors.’ (Submitted by Michael Dehal)
Some analysts express concern that the Nvidia scandal may have broader implications for the tech industry, given the company’s influential role in the AI sector’s growth.
Nvidia commands an estimated 80 percent market share in chips that drive various applications from AI data centers to ChatGPT and drones, making it a crucial player in the field. The company has also invested significantly in supporting other AI ventures, including funding firms like Anthropic, Toronto-based Cohere, and cloud computing company CoreWeave.
Since Huang was a key player in these financing arrangements, Dehal notes that it remains uncertain whether Nvidia will continue to support other tech enterprises, which may temporarily hinder other AI businesses.
Nevertheless, he and other investors anticipate that the tech industry will not suffer a significant downturn. In fact, companies such as Broadcom and AMD, which manufacture their own chips, experienced gains on Thursday, partially offsetting Nvidia’s losses, according to Jamie Murray, president of Murray Wealth Group.
“The funds are still available, and they will be utilized. We don’t foresee this as a major setback for the sector, but perhaps just a rearrangement of priorities,” Murray stated.
For those with diversified investments, Dehal advises there is no cause for concern, but it underscores the necessity of avoiding concentrated investments.
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Williams advises that this scenario might encourage investors to “examine the details” of their investments in order to ascertain potential exposure to specific industries or companies.
“If the events of last week caused you anxiety, consider what actions you can take to mitigate that exposure and explore investing in various countries or sectors,” Williams suggested.