Sex, spies, and exits rock Nvidia, but analysts say AI is safe - USA Today
Nvidia, which became the first ever $5 trillion company last year, once seemed untouchable as the leader of the high-flying tech stock leading the artificial intelligence craze.
Investors have discovered it can be brought down to earth. Nvidia has lost more than $1.2 trillion in value in the past two weeks. The company's shares have shed about 25% and are trading near 52-week lows, bringing the company's valuation below $4 trillion. At 12:36 p.m. ET, Nividia shares were down 5.17%, or 8.97, at $164.76, off its 52-week low of $148.40 earlier in the day.
The cause of the swift plunge wasn't due to any wayward business idea or accounting errors. Instead, it stems from reports of a couple of affairs by married chief executive and company co-founder Jensen Huang. News of an affair first broke on Oct. 29, reportedly with a Chinese spy who allegedly used him to get around embargos on chips to China. He confirmed the relationship in a memo to employees where he acknowledged being unfaithful to his wife and said he took "full responsibility" for his actions.
Then, on Nov. 11, news broke of Huang's alleged affair with Nvidia vice president of healthcare Kimberly Powell, who reported to him.
After reports of the second affair, Huang resigned, but the Board continues to investigate. The company named Colette Kress, the company's chief financial officer and executive vice president, to serve as interim CEO. It also named Harvey Jones, director and former executive at electronic design automation company Synopsys, as Nvidia's first-ever board chair − a much needed position to separate oversight of the company’s board from day-to-day management, analysts said.
"Uncertainty around the leadership of Nvidia risks adding to this sharp price action given Huang's important role as a face of the AI boom, the lack of a clear succession plan at Nvidia, and the financial role this huge company has played in backing other parts of the AI sector," said James McCann, senior economist of investment strategy at Edward Jones. "Today's sharp move in Nvidia share prices reflects these concerns, and we have already started to see analyst ratings downgraded. Despite this uncertainty, the corporate fundamentals around the giant chipmaker are unchanged."
Short-term, analysts say it's hard to know if selling of the shares is over.
Longer-term, they say this could be a buying opportunity but whether the stocks regain the upward momentum it carried over the past couple of years remains to be seen.
"Nvidia remains a vitally important company with tremendous earnings power and a central role in the AI revolution," said Ken Mahoney, president & chief executive of Mahoney Asset Management. "Leadership does matter, particularly when you're talking about someone as influential as Jensen Huang who has been at the helm for 33 years and is seen as a tech visionary. So this is no joke, but the company certainly is not going out of business from this and investors needed to keep that in mind."
With all the chaos surrounding the reported affairs, the alleged Chinese spy and the resignation, investors will look to the company's earnings after the stock market closes on Nov. 17 for guidance. Nvidia's report will cover the August through October period.
That "earnings call just became the most important in the company’s history," wrote Mark Malek, chief investment officer at Siebert Financial, in a commentary. "I will be listening less for the quarter and more for the backlog. Are the orders still the orders?"
Analysts said they'll also be listening for strategy shifts and what the new leaders' vision is to determine if Nvidia can continue to build on its success.
"Customers who waited in line for these chips are not stepping out of it because a nameplate changed, and two decades of developers writing code for Nvidia’s platform doesn’t unwind in a quarter or two," Malek said. "What a new CEO CAN break is everything that hasn’t been built yet. Stewards protect what is already on the books. Builders decide what gets booked NEXT. Until investors know who the builder is, the stock doesn’t get its old premium back."
Even if Nvidia's growth slows down as it sorts out its new leadership, analysts said they believe AI still has a future.
"We would view this primarily as a Nvidia-specific leadership issue rather than a fundamental change in the long-term AI investment thesis," Mahoney said. "Yet, this is a pretty ugly bump in the road at the moment and does not help our chances at rallying."
Bret Kenwell. online brokerage platform etoro 's U.S. investment analyst, said "the AI trade may have lost momentum, but it has not lost its economic footing. The broader AI investment cycle remains intact as technology companies continue racing to build out their AI infrastructure. One company’s leadership uncertainty should not be confused with the end of AI investment."
Medora Lee is a money, markets and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
