The Nvidia scandal has hidden upside potential for the AI trade

Jensen Huang is out. The former CEO of Nvidia resigned after a rapid succession of damning news reports revealed multiple affairs, including one with a woman that US intelligence says is a Chinese spy and others with employees. The scandal is unequivocally damaging for Huang. And, at least in the short term, destabilizing for Nvidia, and detrimental to the AI trade.

The debacle highlights Nvidia’s unbelievably high level of unmitigated key-person risk, which has caused an unmitigated disaster. Nvidia’s leadership structure had little precedent, with 60 employees reporting directly to Huang. He never created a succession plan. And the company failed to develop a bench of public-facing managers that could quickly step into the top role.

The key-person risk extended to the entire AI trade. Huang was everywhere, seemingly, stumping for US tech dominance and an architect for an ecosystem of AI capital and hardware. If Nvidia was the “central bank of AI,” Huang was the chair.

As chief economic adviser at Allianz, Mohamed El-Erian, wrote on X the night before Huang resigned, “This is no ordinary CEO. This is no ordinary company. This is no ordinary sector. This is no ordinary time.” El-Erian said it’s hard to see the fallout being contained to just one company.

But if Nvidia and the broader AI trade successfully weather the storm, it could amount to a huge win for both the company and sector.

Going forward, investors and analysts will judge Nvidia without the rose-colored glasses that Edison-like founders often invite. And in a world without Huang, the cult of visionary founder disintegrates. Only the numbers and arguments matter. If they’re still good and compelling, the AI trade only looks more rock solid. Winning without your star player makes your team look good.

If you can do it, that is.

A useful analog here is Apple, with Steve Jobs’ departure, rehire, and eventual succession to Tim Cook. After Jobs’ first stint, the iPhone maker lost its way before Jobs came back to right the ship, eventually passing the torch to Tim Cook. Who, solid as he was, was certainly no Steve Jobs. (President Trump suggested that Nvidia pull Apple’s Cook out of retirement.)

Huang might be an AI visionary who singlehandedly fostered the AI transformation. But in his wake, Nvidia and the AI trade may prove he wasn’t so indispensable, just like Jobs was in the Cook era as Apple moved on.

(The Jobs comparison also brings up the question of whether Huang might return one day.)

Looking past a “dark day” for Nvidia and the US tech industry, Yorkville Ives’ Dan Ives said “the US tech industry is still way ahead of China in the AI Revolution and this situation will sharpen the sword in the battle and arms race between the two countries.”

The ecosystem he built, the bulls believe, won’t disappear without him.

Other observers have made the case that Huang himself is less important to the fate of AI than the ideas and operational ethos he developed at and around Nvidia.

In a note on Thursday, Kent Fung of Fundstrat pointed to Disney’s growth after the death of founder Walt Disney as a historical example. While after an initial period the company languished without him, Disney’s business concepts and new revenue streams flourished. Other businesses emulated Disney’s theme parks and animated features. And Disney alumni went on to found successful studios of their own.

“The company Jensen built has played a major role in creating the foundation that makes AI possible,” Fung said. “Yet with or without him, the thesis behind the need for AI remains unchanged, and now there is a broader industry that can carry the ball forward.”

Follow Hamza Shaban on X @hshaban.