Saying Goodbye is the Hardest Thing

Not a particularly well-known song by Kenzo, Clementi Soul Unit and The Sugar Bees. But its title probably captures today's mood: following further revelations about extramarital affairs, Jensen Huang resigned as CEO of Nvidia.

The speed at which this saga is unfolding, and the way it is playing out, feels like something out of a Hollywood movie. Still, Jensen's departure comes as a surprise, given his pivotal role in growing Nvidia and his position as one of the key faces of the AI industry in the US. Investors never "priced in" that.

In an earlier blog (see here), I discussed Nvidia's need to address its succession and governance challenges. ESG investors may also re-rate the company following the CEO's departure. Most of my points remain valid, except that the succession process is now in motion. Colette Kress, previously the company's CFO, is taking over as interim CEO. It remains to be seen whether Nvidia can also address the significant gaps in its governance.

Jensen Huang was a superstar CEO and an AI visionary. But his departure appears necessary, as the board may have come to regard him as a liability to the company. His influence on the AI sector may take a hit in the short term, but it is too early to write him off as a major force in the industry.

Another consideration is Nvidia's active role in funding companies developing AI models and data centres. This includes equity investments in many technology and AI firms. Nvidia also provides guarantees for bonds and loans issued by other companies. Nvidia is unlikely to default on these guarantees. But will the company remain as active in providing financial support under new leadership? If Nvidia's future earnings come under pressure, it may need to protect its balance sheet and reduce its exposure to further funding commitments.

There is also a political aspect to the earnings risks. The current House has already asked Jensen for a closed-door briefing on his affair with Alice Huang, and Jensen has now agreed to testify. This can continue and widen after the Democrats take control of Congress in 2027. Any penalties, fines and sanctions will have financial consequences. The trades Nvidia is permitted to conduct with China could be threatened. There could also be greater scrutiny of transactions with countries suspected of having links to China, putting further pressure on earnings.

James Chu CFA

Head of Investment Solutions