ANALYSIS-Investors worry the AI trade needs Nvidia's Huang and its largesse

Investors fear an ouster of CEO Jensen Huang might dampen ​Nvidia's willingness to bankroll the AI boom, in yet another pressure point on the global markets' ‌most ​crowded trade. The board of the world's dominant chipmaker, at the cutting edge of computing, was meeting late Wednesday to decide Huang's fate as it grapples with reports of two extramarital affairs involving its longtime leader.

Traders' first reaction was to punish Nvidia shares and those of its customers, including data-centre firms CoreWeave and Naver, while pushing shares of chipmaking rivals Broadcom and AMD higher. Shares in China's leading makers of graphics ‌processing units (GPUs) surged on Thursday, as mounting turmoil at Nvidia boosted expectations that local chip suppliers could win greater market share. Moore Threads, MetaX and Cambricon all jumped nearly 10%.

But the worry in the market is that the stakes are far higher and that if Nvidia — under a different leader — backs away from a strategy of financing data centres, then the AI boom itself loses momentum. "He's the face of Nvidia and Nvidia has been front and centre of the AI build-out," said Jun Bei Liu, lead portfolio manager at Ten Cap, a fund manager in Sydney.

"There's just a lot ‌of uncertainty to come ... not just for Nvidia; it's for the whole AI — all the businesses that they co-invest and sponsor," she said. "I think the fear is that the music might stop." Nerves, plus the 8% after-hours drop in Nvidia stock, sent Nasdaq 100 futures down ‌nearly 1% in Asia.

Nvidia has been the banner stock of the AI revolution, with its chip technology ahead of rivals and enormous sales driving the share price up some 900% over the four years since the launch of OpenAI's ChatGPT ushered in the AI era. But Nvidia has also become a torchbearer and financier, anticipating demand for ever more powerful chips while sinking billions of dollars into funding its own customers via a mix of equity investments and other promises.

"Nvidia's credit support is what makes much of this debt finance-able across the AI hyperscaler deal front," said Christopher Brown, senior vice president, investments, at Synovus Securities. "Lenders will ask what happens to that support if Nvidia's leadership or regulatory ⁠standing is impaired, and ​Nvidia's own willingness to extend more guarantees may be constrained." Nvidia's board launched an ⁠investigation into Huang following reports he had an extramarital affair with a businesswoman who was alleged to be a Chinese spy. A subsequent report about another affair came out ahead of Wednesday's board meeting.

"I don't see the next 12 to 18 months of revenue suddenly disappearing if Jensen were to leave," said Shay Boloor, chief market strategist at ⁠Futurum Equities. "My bigger concern is next decade, because Jensen isn't simply Nvidia's CEO but he's the person who has consistently identified where computing is going before customers even realise," he said.

"Replacing that strategic vision ... is an enormous challenge." NVIDIA SINKS, TAKES SOME, NOT ALL, ALONG

A departure or diminished role for Huang would leave a vacuum ​at the top of the roughly $4 trillion chipmaker that he co-founded and built over more than three decades to become the top supplier of chips and the nexus of the US-China technology rivalry. Huang has never anointed a successor, but analysts said ⁠they see two likely internal candidates: engineer Ian Buck and Chief Financial Officer Colette Kress, though both lack his rock-star cachet and high profile that have drawn him near to world leaders.

"If Huang is ultimately ousted, traders are forced to apply a discount to the stock until two questions are answered: who takes the helm, and how much does strategy change under ⁠new leadership? ​Until those answers exist, uncertainty itself is how the stock will be valued," said Jake Behan, head of capital markets at Direxion. Chipmakers in Asia, whose stocks have soared with Nvidia and the AI spending boom, but lately sagged on worries about funding costs and the demand outlook, slipped.

Nvidia listed $164.5 billion in financial commitments in its most recent earnings report, with an obligation capped at $105 billion on an OpenAI data centre in Ohio and lease and other capacity guarantees topping $50 billion. The company is also one of the investors in Claude chatbot creator Anthropic's initial ⁠public offering. The listing this month is set to serve as a test of investor appetite for all things AI.

Shares in Nvidia-backed data-centre operator CoreWeave, which surged on Wednesday on upbeat earnings, fell more than 6% after hours. Shares in South Korea's Naver, in which ⁠Nvidia took a $1 billion stake by financing a data-centre expansion, also dropped nearly 6%. To ⁠be sure, investors said, the quality of Nvidia's products is not likely to change, and change at the top won't quickly hit demand.

"Nvidia's core asset is its advanced GPUs, which still have no real substitute in the market," said Anna Wu, founder of Floodlines Research. "The AI trade rests on that demand, not on one individual." But when the company reports earnings next week, the focus will inevitably be on leadership, strategy ‌and whether a sales outlook formed under Huang still ‌holds up under a potential successor.