Nvidia‘s (NASDAQ:NVDA) board may vote to remove founder and CEO Jensen Huang as soon as this evening, reports the Wall Street Journal, citing people familiar with the matter. Such a move would be a shocking reversal of fortune for Huang, who became the face of the global AI boom and the leader of the world’s first $5 trillion company.
It would also put Nvidia, which has dominated the high-end microprocessor market for decades, in the uncomfortable position of needing a new leader even as its stock has fallen sharply over the past month.
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Here’s why the board may feel compelled to vote on a move that would have seemed unthinkable just a week ago.
The Alice Huang affair
The turmoil stems from a revelation over the weekend involving Alice Huang (no relation to Jensen Huang), an executive at the Singapore-based data company Megaspeed.
Megaspeed is a major Nvidia customer, and the two Huangs were frequently seen together in a business context. Megaspeed was among several companies using Nvidia chips to build AI data centers in Southeast Asia and was suspected of diverting some of the products to China. U.S. intelligence officials now believe Alice Huang has been working for China’s intelligence services, and the Justice Department has reportedly launched multiple investigations involving her.
On Sunday, Jensen Huang acknowledged in a letter to staff that he had been unfaithful to his wife, without naming the other party or parties in the affair. His reference in the letter to “national security concerns” suggests that this referred to Alice Huang.
However, The New York Times has reported that Jensen Huang also had a separate affair with an Nvidia employee. But that report rests on an anonymous source, and neither Jensen Huang nor Nvidia has publicly addressed it.
An unanswered succession question
The scandal has highlighted Nvidia’s lack of a clear succession plan, which until now had been an afterthought given Jensen Huang’s clear devotion to the company.
In its most recent 10-K, Nvidia warned that it is “highly dependent on the services of our long-standing executive team,” and that “[f]ailure to ensure effective succession planning, transfer of knowledge, and smooth transitions involving executives and key employees could hinder our strategic planning, execution, and long-term success.”
But Huang has stated in the past that he doesn’t believe in succession planning. Although his daughter and son-in-law both work at Nvidia, he has in the past rejected the idea of passing the CEO role to one of them. But because he also prefers a flat leadership structure and manages as many as 60 direct reports, no clear successor is evident.
In other words, if the board does act to oust Huang this week, it isn’t clear who would take over, even temporarily.
What it could mean for the stock
The market has already reacted with alarm.
Nvidia shares fell about 8% in after-hours trading, extending a recent slide that began when it emerged that the board was investigating Huang’s relationship with Alice Huang. As of today’s market close, the company’s shares were already down about 25% in the past month.
A leadership change could add to the pressure. Huang is Nvidia’s largest shareholder, owning about 3.6% of the company, and his personal brand – and signature black leather jacket – has been central to the company’s pitch to customers and governments. Losing him without a designated successor could diminish the company’s influence and call its overall strategy and execution into doubt.
Ultimately, if Nvidia’s board does pull the plug on Huang, how Nvidia’s shares fare in the coming months will depend on several factors that are still undecided: how quickly the board acts, how they decide to act, what other information comes out about Huang’s affair and its impact, and whether the board can unite behind a credible successor quickly.
Whatever happens, it’s likely to be a turbulent few months for Nvidia shareholders.
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John Bromels has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
