Nvidia’s Problem Is Bigger Than Its CEO

Résumé détaillé

The board is weighing Jensen Huang’s future, but the larger risk for the market is the financing system he built.

The board is weighing Jensen Huang’s future, but the larger risk for the market is the financing system he built.

Nvidia’s (NVDA) board met late Wednesday to decide whether Jensen Huang remains chief executive. So far it hasn’t announced anything. The stock is down about 6% premarket to around $163 after The Wall Street Journal reported that the board was preparing to oust him. The New York Times added a report of a second relationship, this one with an executive who reports to him.

Nasdaq 100 futures are down about 0.8%, S&P 500 futures are off about 0.4% and Dow futures are flat.

Huang founded Nvidia and has run it for more than 30 years, but he doesn’t have voting control. A majority of the 11 directors can remove him, and Bloomberg reports that the board is already working with an outside firm to identify replacements.

When Intel (INTC) and McDonald’s (MCD) removed chief executives over relationships with employees, the stocks fell 2% to 3% and moved on. Neither of those executives was a founder who defined the company the way Huang has been the face of AI, so the reaction here is likely to be bigger.

Wall Street is stepping aside. Bernstein and Oppenheimer both downgraded the stock overnight. Bernstein’s Stacy Rasgon cut his price target to $200 from $400 and wrote, “We’ve had enough, and prefer to watch from the sidelines.” Citi kept its Buy rating but cut its target to $225 from $285.

Even the lowered targets are well above Thursday morning’s price. At $163, Nvidia trades at less than 18 times this year’s expected earnings and about 10 times next year’s. That discounts a lot of damage, but nobody wants to step in until the board acts and the headlines stop.

Nvidia’s chips will keep selling with or without Huang. The market is more concerned about the financing system he created.

Nvidia uses its cash to fund its customers and suppliers, and they use the money to buy more Nvidia chips.

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