On Thursday, Nvidia’s stock experienced a significant drop following the resignation of CEO Jensen Huang amid a major scandal involving alleged espionage, prompting investors to ponder the company’s trajectory without its long-standing leader.
After the stock market opened, shares of the AI chip manufacturer fell by 14 percent in response to Huang stepping down from both his CEO and board member positions. However, the stock managed to recover somewhat, ultimately closing the day down 4.3 percent.
The wider market largely remained insulated from Nvidia’s troubles, with major indexes showing only slight losses by the end of the trading day.
Michael Dehal, a senior portfolio manager at Dehal Investment Partners, noted that the decision to appoint Colette Kress, the chief financial officer, as interim CEO likely contributed to the rebound in Nvidia’s stock price.
“This swift resolution on a temporary basis was comforting to investors,” Dehal commented.
Despite this, the situation marks a considerable downturn for a company that achieved a $5 trillion US valuation just a year prior, having now lost over $500 billion US since Huang’s scandal involving an alleged Chinese spy, and more than $1 trillion US since its peak in October. While Huang has acknowledged having an affair, he did not confirm whether it was with Alice Huang, the individual whom U.S. intelligence claims is associated with Beijing. Reports suggest he also had another affair with a company vice president who reports directly to him, according to a report by the New York Times published Wednesday.
Nvidia, the American technology behemoth, was shaken by claims that its president and CEO Jensen Huang had multiple extramarital relationships, including one with an alleged Chinese spy. Following his resignation, CFO Colette Kress has assumed the role of interim CEO at the leading chipmaker and AI titan.
This development has raised concerns among industry observers who are now reassessing Nvidia’s value in the absence of its seemingly irreplaceable founder and leader.
Moreover, such volatility could affect investments and retirement funds for many Canadians, according to financial advisors and investment managers.
As one of the top-valued firms globally, Nvidia constitutes a significant portion of major stock indexes, where companies with larger market capitalizations carry greater weight.
Due to its substantial size, the company, headquartered in Santa Clara, California, comprises approximately six percent of the S&P 500 and around nine percent of the tech-oriented Nasdaq.
Dehal pointed out that many Canadians invest in index funds via exchange-traded funds (ETFs), which mirror those major indexes, indicating they could be vulnerable to significant fluctuations in Nvidia’s stock price. While mutual funds may also focus heavily on technology, they might offer better diversification since they are actively managed by professionals.
A screen at the New York Stock Exchange illustrates Nvidia’s stock price decline in New York on Monday. (Yuki Iwamura/Associated Press)
Over the past few years, major stock indexes have become increasingly dominated by technology firms, as the AI surge has increased the market values of companies such as Apple, Microsoft, and Google’s parent company Alphabet. With tech firms now representing an estimated 40 percent of the S&P 500, certified financial planner Zainab Williams warns that investors who have invested in basic ETFs might face significant fluctuations in tech stocks — particularly in AI.
“Investors tend to hold numerous ETFs and believe they are well diversified,” Williams noted. However, if those ETFs consist of many of the same companies, “you may be subjecting yourself to similar levels of volatility.”
Michael Dehal, a portfolio manager, stated that Huang’s rapid departure from Nvidia was ‘reassuring to investors.’ (Submitted by Michael Dehal)
Some analysts express concern that the Nvidia incident could have broader implications across the tech industry, given the company’s essential role in AI development.
With an estimated 80 percent market share in chips that power everything from AI data centers to ChatGPT and drones, Nvidia is a key player in the sector. The company has also invested significantly in funding various AI startups, including Anthropic, Toronto-based Cohere, and the cloud computing company CoreWeave.
Since Huang was instrumental in these funding arrangements, Dehal points out that Nvidia’s future investment in other tech entities is uncertain, which could temporarily impact other AI companies.
Nevertheless, he and other investors are hopeful that the tech sector will not suffer drastically. In fact, tech companies such as Broadcom and AMD, which manufacture their own chips, saw gains on Thursday, compensating for some of the declines experienced by Nvidia, according to Jamie Murray, president of Murray Wealth Group.
“The capital remains available, and it will continue to be utilized. We don’t anticipate this will slow everything down significantly, just perhaps a rearrangement of priorities,” Murray stated.
For those with a diversified portfolio, Dehal reassures that there is little cause for alarm; however, it highlights the necessity of not concentrating investments in one area.
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Williams suggests that this situation could encourage investors to “look deeper” into their investments to better understand any potential exposure to specific industries or firms.
“If last week’s events caused you considerable stress, consider exploring ways to mitigate that exposure and diversify your investments across different countries and sectors,” Williams advised.
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