Nvidia's market value has fallen by about $1.7 trillion in five weeks, roughly 30% from its record high. As the share price retreats, the board is investigating an allegation involving CEO Jensen Huang, while investors weigh whether the company could manage a smooth leadership transition if its co-founder were to leave. Nvidia's operating results remain strong, but uncertainty over its leadership has entered the market debate.
Board investigates allegation as market value falls
Nvidia reached a record closing market value of about $5.78 trillion on October 6. By around midday Eastern time on November 10, its value stood at roughly $4.04 trillion, a decline of about $1.7 trillion from the peak.
Over the weekend, Huang acknowledged in an email to employees that he had had an extramarital relationship. The woman involved was reportedly an executive at Singapore-based Megaspeed, which purchases Nvidia hardware. A separate allegation holds that U.S. intelligence officials suspect she passed information to Beijing; China has denied the claim.
On Sunday, Nvidia's board said an independent-director committee would investigate, with the support of outside counsel, whether Huang had been targeted by a foreign intelligence operation. The board said it had no reason to believe national security or Nvidia confidential information had been compromised. Huang has agreed to cooperate fully.
Shareholders have since filed a proposed class-action lawsuit against Nvidia and Huang, alleging that the company misled investors. There is no indication that Huang has left the company, and the board's inquiry has not reached a published conclusion. For shareholders, the immediate questions are what the investigation finds and whether the episode affects Nvidia's leadership plans.
Huang's central role puts succession in focus
Huang co-founded Nvidia in 1993 and has led the company ever since, serving as both chairman and CEO. In its latest annual report, Nvidia also warned of its reliance on a long-serving management team, noting that ineffective succession planning could harm the company's long-term prospects.
The concern goes beyond filling the CEO role. Huang has long helped shape Nvidia's strategy and manages relationships with governments and major customers. If he were to leave, the board would need to decide who would take charge on an interim basis and whether to seek an external successor. Analysts say no obvious internal successor has emerged.
Analysts trim targets, but stop short of broad bearish calls
Wells Fargo cut its Nvidia price target from $315 to $300 while maintaining an Overweight-equivalent rating. The bank cited the investigation and the possibility that a key leader could depart, but said the risks to AI demand and Nvidia's core business appeared limited. Its new target remained about 80% above the share price on November 10.
Bernstein kept its Outperform rating, saying the espionage allegations so far appeared more procedural than substantive, while noting that they highlighted Nvidia's dependence on a key individual. Bank of America, meanwhile, removed Nvidia from its U.S. 1 List.
Gene Munster of Deepwater Asset Management said on a podcast this week that the stock appeared to reflect about a 25% chance of Huang's departure, above his own estimate of 10% to 15%. Russell Pillemer, CEO of Pengana Capital, called Huang Nvidia's "brains" and said the company had no obvious successor.
Past CEO departures show the importance of succession
There is no consistent pattern in how shares perform after a CEO's unexpected departure. A company's operating position and the quality of its succession plan can both shape what follows.
In January 2018, Wynn Resorts shares fell about 10% in a day and roughly 20% over several days after founder Steve Wynn faced allegations of sexual misconduct. Wynn denied the allegations and resigned as CEO weeks later; the casino business continued operating.
Hewlett-Packard CEO Mark Hurd left in August 2010 over inaccurate expense reports, and the company's shares fell about 8% the following day. His successor, Léo Apotheker, cut guidance for three consecutive quarters. In August 2011, HP said it might sell or spin off its PC business, discontinue the TouchPad tablet and acquire software company Autonomy for about $10 billion. Its shares fell about 20% the next day. Apotheker was removed after 11 months in the role.
Apple's transition was different. When Steve Jobs resigned as CEO for health reasons in 2011, the shares fell about 5% after hours. Tim Cook, who had already been running day-to-day operations, succeeded him. Apple's market value grew substantially during Cook's tenure.
Strong growth sets up scrutiny of next earnings report
Nvidia's most recent quarterly revenue rose 106% year over year to $96.2 billion, including $89 billion in data-center sales. The company expects revenue of about $108 billion in the current quarter; that forecast assumes no data-center computing revenue from China. Its current chips are already in production, so the quarter's guidance does not depend on who signs the company's documents.
The longer-term question is who will set Nvidia's strategy over the next five years and manage its relationships with the U.S. government and major customers. The company is scheduled to report quarterly results on November 17. Investors will be watching for any comments on the board inquiry or succession planning, and for whether Nvidia maintains its current outlook. The investigation's findings and the leadership plan remain unresolved, leaving governance risk among the issues investors are assessing.