Shareholders have filed a lawsuit against Nvidia and Huang. What risks does the “key person” risk pose to the company?

A class-action lawsuit was filed on November 9 against chipmaker Nvidia and its CEO, Jensen Huang, according to Reuters. The company and its CEO are accused of defrauding shareholders by concealing Huang’s ties to an alleged Chinese spy. The scandal surrounding Huang has raised questions about the future of Nvidia itself and its heavy reliance on its CEO, Yahoo Finance reports. Nvidia’s stock has been falling for the second day in a row.

The lawsuit alleges that Huang and Nvidia misled shareholders regarding the top executive’s romantic relationship with Alice Huang—the former head of Singapore-based Megaspeed (who merely shares a last name with the Nvidia CEO)— Reuters reports. Furthermore, it is alleged that they failed to disclose that this situation raised national security concerns, threatening the company’s reputation and business prospects.

The lawsuit was filed in a California court by the Rosen Law Firm. The plaintiff is retail investor Mark Kistenmacher, who claims to have filed the lawsuit “on behalf of all other shareholders in a similar situation.”

Although the board of directors states that there is no reason to believe that Nvidia’s trade secrets or national security have been compromised, this incident has exposed the “key person risk”: Investors are concerned about how Nvidia will fare if its top executive were to suddenly step down, notes Yahoo Finance.

“It’s amusing to see a major company facing the risk of dependence on a key individual—a problem typically associated with startups,” said Isaac Stone Fish, CEO and founder of Strategy Risks. “But Nvidia has to decide: is it Jensen, or is it Nvidia?”

According to Sierra co-founder Clay Beavor, Huang’s status as a central figure at Nvidia is a double-edged sword. “I think this is the flip side of exceptionally strong leadership in some companies, where there is a concentration of power, influence, high visibility, and everything that comes with it,” he explained.

Nvidia’s vulnerability lies in the fact that Jensen is the semiconductor giant’s product strategist and public face in both Washington and Beijing, noted Patrick Moorhead, CEO and chief analyst at Moor Insights & Strategy. Wedbush analyst Matt Bryson also pointed out that the board of directors’ initial statement reduces the likelihood of plans to oust Huang. However, he added that if the board does force the CEO to step down, it would be a significant blow to the business.

Wall Street analysts generally say they do not believe the board of directors will force Huang to step down or that he will resign on his own because of this scandal, according to Yahoo Finance. However, there are also opposing views.

In October, The New York Times reported on an alleged romance between the head of Nvidia and Alice Huang. The newspaper also reported that U.S. authorities had concluded that she was working for Chinese intelligence. Jensen Huang himself had previously admitted to employees that he had been unfaithful to his wife, without revealing any details about the affair.

On November 8, Nvidia announced the launch of an internal investigation. On Monday, its stock closed down 4.3%, which reduced the company’s market capitalization by approximately $190 billion. At the opening bell on November 10, the stock was down nearly another 3%.

This article was AI-translated and verified by a human editor