Nvidia – A Severe Test

I think Jensen stays on.

• For many years, the idea that Jensen Huang could be forced out of Nvidia was unthinkable, which is why the single-man risk has had no effect on the share price.
• The single-man risk affects many companies with a high-profile founder or CEO, such as Apple with Steve Jobs, Meta with Mark Zuckerberg, and many others.
• At Nvidia, this problem is particularly acute because Jensen Huang is very hands-on, meaning that the key decisions that led to its success were ultimately taken by him and because there is no obvious successor.
• He was also responsible for the flat organisational structure and the early decision to use simulation, which allows the company to bring products to market much faster than the competition.
• Jensen has stated that he hopes that his successor is already working at Nvidia, but beyond that, there is no indication of who or where this person might come from and until last week, this was not a big issue.
• With recent events, this is no longer a remote possibility, and so I suspect we are about to find out just how much the market thinks that the company is dependent on its iconic founder and CEO.
• The problem is serious in that there is a possibility that Jensen Huang was the target of a foreign intelligence effort that may have been more successful as a result of a lapse in his judgment.
• The closed-door briefing with the Committee on Foreign Affairs on the 18^th November will focus on Nvidia’s security protocols and whether China gained illicit access to cutting-edge US technology or silicon chips as a result of this effort.
• I suspect that the findings of this committee will have an impact on the Nvidia Board’s own investigation, which ultimately will decide what action Nvidia needs to take.
• Nvidia has no super-voting class of shares or very large shareholders, meaning that the board should be able to come to an independent decision.
• I am far from convinced that Chinese AI has materially benefited from technology or illicit chip imports that it gained from Nvidia.
• In fact, I would argue that China has learned far more from Apple and Tesla than it has from Nvidia.
• This is obvious when one looks at China’s commitment to its homegrown silicon (which no one would buy if they had a choice) as well as its increasing dependence on importing compute from overseas.
• Hence, I think that it is more likely than not that the committees and the board conclude that while Jensen has had a serious lapse of judgement, no material harm has resulted.
• Furthermore, given the contribution that Jensen has made to both the shareholders of Nvidia and the US technology industry more generally, I think they conclude that the interests of the US AI industry are best served with him leading Nvidia as opposed to leaving the company.
• Consequently, I think Jensen will survive this severe test and will continue to lead Nvidia and that the company will end up more resilient than it was before.
• The big question now is what happens to the share price, which is currently trading at $178 on BOATS, which is down 4.3% from Friday’s close.
• I think that if Jensen were to leave Nvidia, the price would be down a lot more due to the uncertainty that would result, but a company is almost always more than just one man.
• This is especially true when looking at fiscal 2028 where I think almost all of the sales have already been made and the products developed meaning that all Nvidia needs to do is the day-to-day blocking and tackling to make the numbers.
• Hence, with every download lurch in the share price, I become more and more interested in taking a position.
• My dithering has so far paid dividends.