Jensen Huang’s Nvidia exit raises fears over the future of AI financing

AI Summary

Nvidia CEO Jensen Huang's departure rattled investors and raised questions about the company's future role in financing AI infrastructure and customers. Nvidia shares fell sharply, while rival chipmakers and some Chinese GPU firms gained; CFO Colette Kress is serving as interim CEO as the company seeks a successor.

Nvidia CEO Jensen Huang’s departure on Thursday raised concerns not only about the future of the multitrillion-dollar chipmaker but also about its willingness and ability to continue financing the artificial intelligence boom, Reuters reported.Huang’s exit added another pressure point to one of the global market’s most crowded trades. It came after Nvidia’s board met late Wednesday to consider the longtime CEO’s future following reports of two extramarital affairs.Chief Financial Officer Colette Kress will serve as interim CEO while Nvidia searches for a permanent successor, the company said in a statement.Investors initially sold Nvidia shares and stocks linked to the company, including data-centre operator CoreWeave and South Korea’s Naver. Shares of chipmaking rivals Broadcom and Advanced Micro Devices advanced.Chinese graphics-processing-unit makers also rallied on expectations that Nvidia’s leadership upheaval could help local suppliers gain market share. Moore Threads, MetaX and Cambricon each surged nearly 10%.Nvidia shares fell 13%, while Nasdaq 100 futures declined 0.6%.The broader concern is that Nvidia could scale back its strategy of financing data centres under new leadership, potentially slowing investment across the AI industry.Also Read | Anthropic IPO: Can Indian investors apply for Claude maker's $64 billion share sale? Check rules“Nvidia has been called the ‘Bank of AI’. They’ll sell you the chips and loan you the money. If they have to take a step back because of what’s going on, will that cut off funding to smaller companies that need it? That’s an open question,” said Joe Saluzzi, partner and co-head of equity trading at Themis Trading in Chatham, New Jersey, according to Reuters.Nvidia has been the flagship stock of the AI revolution. Its technological lead and surging sales have driven its share price up about 900% in the four years since the launch of OpenAI’s ChatGPT helped usher in the generative-AI era.The company has also emerged as a major financier of the industry, investing billions of dollars in customers through equity stakes and other financial commitments as it anticipates growing demand for increasingly powerful chips.“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 after reports that he had an affair with a businesswoman alleged to be a Chinese spy. A separate report involving another alleged affair emerged before Wednesday’s board meeting.Shay Boloor, chief market strategist at Futurum Equities, told Reuters that Nvidia’s revenue was unlikely to fall suddenly following Huang’s departure. The greater concern, he said, was the company’s long-term direction because of Huang’s central role in shaping its computing strategy.“Replacing that strategic vision ... is an enormous challenge,” Boloor said.Nvidia’s departure reverberates across AI stocksHuang’s exit creates a leadership vacuum at the roughly $4 trillion company he co-founded and built over more than three decades. Nvidia has become the leading supplier of AI chips and a focal point of the technology rivalry between the United States and China.Asian chip stocks, which had rallied alongside Nvidia during the AI spending boom but recently came under pressure from concerns about financing costs and demand, also declined.Nvidia disclosed $164.5 billion in financial commitments in its latest earnings report. These included an obligation of up to $105 billion tied to an OpenAI data centre in Ohio and more than $50 billion in lease and capacity guarantees.In August, Nvidia said it had partnered with six major financial institutions, including Apollo, BlackRock and Blackstone, to establish computing-finance platforms seeking more than $500 billion in third-party capital for AI infrastructure. Huang said the company could backstop as much as $125 billion, or 25% of the potential deals.“The interlocking deals that Nvidia has with so much of the industry raise the question of whether that created more stability or more fragility,” Steve Sosnick, chief market analyst at Interactive Brokers, told Reuters.Nvidia is also an investor in Anthropic, the developer of the Claude chatbot. Anthropic’s initial public offering this month is expected to test investor demand for AI-related assets.CoreWeave shares fell more than 7.5% in premarket trading after surging Wednesday on upbeat earnings. Naver, in which Nvidia invested $1 billion by financing a data-centre expansion, dropped 6%.(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)