Key Points
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Several Wall Street analysts lowered their price targets as CEO Jensen Huang leaves Nvidia.
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There are worries about the lack of a successor and talent leaving the chipmaker.
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Nvidia is the chip of choice for AI developers, and it’s integrated systems create high barriers to entry for competition.
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The market is still digesting the shocking news that Jensen Huang is out as CEO of Nvidia (NASDAQ:NVDA) after reports came out that he had two extramarital affairs and was possibly a target of Chinese spies.
Nvidia stock has fallen 14% since the news broke on Nov. 9, erasing all of the company’s gains this year and more.
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Wall Street is already reevaluating its price targets, and Citigroup (NYSE:C) analysts Atif Malik and Papa Sylla slashed their 12- to 18-month price target from $285 to $225, according to The Wall Street Journal.
Does this make any sense?
The scandal that roiled what was the most valuable company in the world
Nvidia was the first public company to reach a $5 trillion valuation earlier this year. It has since shed more than $1 trillion of its value and trails Apple (NASDAQ:AAPL) as the most valuable company in the world.
Jensen Huang co-founded Nvidia in 1993 and shepherded it to become the most important company in the artificial intelligence (AI) economy. Reports note that he led a flat management structure with no clear successor and 60 executives reporting straight to him.
As of this writing, multiple analysts have cut their price targets for Nvidia stock, including the Citigroup team. “A leadership transition creates an overhang on the stock given his central role in strategy, product vision, customer relationships, and investor confidence,” they said.
Bernstein cut its $400 price target in half, and Oppenheimer (NYSE:OPY) withdrew its price target entirely, noting that there’s no clear successor in place and that some talent might leave along with Huang.
Nvidia’s future is unclear
Nvidia is closely tied to Huang, and his departure is a real test for the company. However, it’s still the dominant AI chipmaker, and its products are responsible for the most advanced AI development.
Sales more than doubled in the 2027 fiscal second quarter (ended July 26), and CFO and interim CEO Colette Kress has already given guidance for next year’s sales to increase by 70%.
Analysts have already jumped on the news, but Nvidia’s clients aren’t canceling their orders, and they aren’t likely to. Not only do they need Nvidia chips to keep up their pace, but Nvidia has been increasingly selling full compute systems that keep clients in its ecosystem and create high barriers to entry for competitors.
It does make sense that this abrupt change is fueling fear on Wall Street, but it doesn’t make sense to worry and panic sell. Nvidia has a strong business, and depending on what it tells investors when it reports third-quarter earnings next week, the stock could start to climb back.
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Citigroup is an advertising partner of Motley Fool Money. Jennifer Saibil has positions in Apple. The Motley Fool has positions in and recommends Apple and Nvidia. The Motley Fool has a disclosure policy.
