The CEO of Nvidia was ousted. On Wall Street, this was described as the worst-case scenario for the stock.
Jensen Huang / Photo: jamesonwu1972 / Shutterstock.com
Nvidia CEO Jensen Huang will step down amid reports of two extramarital affairs, including one with a woman whom U.S. intelligence agencies suspect of working for Chinese intelligence, Bloomberg reported. The decision for Huang to step down was made by the board of directors.
Chief Financial Officer Colette Kress will serve as acting CEO.
Nvidia shares plummeted more than 11% in premarket trading in New York. Futures on the Nasdaq 100 technology index fell 1%.
What They're Saying on Wall Street
After Huang admitted to marital infidelity on November 8 and Nvidia launched an internal investigation, analysts speculated that he might be forced to step down, but considered that scenario unlikely.
“The problem at Nvidia is that Jensen doesn’t have a clear successor. We expected him to remain in his position for at least another 10 years,” wrote Ben Reitzes, an analyst at Melius Research, in a note on November 9.
Jordan Klein, an analyst at the Japanese bank Mizuho, said on November 10 that investors should take advantage of the fact that Nvidia’s stock has become “ridiculously cheap” based on its valuation multiples. He noted that Huang is “irreplaceable” in the eyes of investors, and the risk of his departure is not factored into the stock price. “I don’t know what Plan B would be, and I don’t want to think about it,” the analyst said.
Huang's potential departure from Wall Street was described as a highly undesirable scenario.
“Depending on the circumstances, Nvidia’s stock could plummet by 10–30%,” noted Yegor Tolmachev, senior equity analyst at Freedom Broker. “The extent of the decline will depend, in particular, on how influential Huang’s successor turns out to be and how severe the sanctions imposed on the company will be.”
“We believe that removing Jensen Huang from his position as CEO would be an extremely undesirable scenario,” said Ken Mahoney, CEO of Mahoney Asset Management. “If that were to happen, we believe the company’s stock would find itself in an even more difficult position than it is now.”
“If he leaves, the optimistic outlook for the company will go with him. It’s practically impossible to imagine Nvidia without Jensen. If he’s removed from his position, the stock will plummet, having lost all support,” said Jay Goldberg of Seaport Research, the only one of 73 Wall Street analysts who had recommended that investors sell Nvidia stock even before the scandal broke.
On November 11, Morgan Stanley analysts removed Nvidia from their list of top picks, and Baird became the first firm on Wall Street to downgrade its rating on the stock to “neutral” (which corresponds to a “hold” recommendation rather than a “buy” recommendation). In both cases, the reason was heightened uncertainty surrounding the company’s leadership.
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