The Information Column: Jensen Huang May Ultimately Have to Step Down, but Nvidia Has No Clear Number Two

By Martin Peers, The Information

Translated by TechFlow

TechFlow Editor's Note:After Jensen Huang became embroiled in a scandal over an alleged extramarital affair with a woman suspected of being a Chinese spy, investigations by Nvidia's board, Congress and the FBI were launched simultaneously. On Monday, Nvidia fell 4%, AMD rose 13% and Broadcom rose nearly 9%.

The Information columnist Martin Peers goes further: even if the board clears Jensen Huang, his reputation is unlikely to fully recover, and Nvidia has no obvious number two. That is the real 'key-person risk' that shareholders should worry about.

We do not treat succession talk as a foregone conclusion, but it highlights a part of Nvidia's valuation that has long been overlooked.

Headhunters are likely making calls across the semiconductor industry right now, pondering whom to recommend to Nvidia's board should the board decide that Jensen Huang must leave. Here are two surprising candidates: AMD CEO Lisa Su and Arm CEO Rene Haas.

The company led by Lisa Su is Nvidia's direct rival in AI chips (as we previously wrote, 'AMD is Nvidia's only credible competitor'). She has made AMD a stronger competitor and done an excellent job: after years of stagnation, AMD's revenue soared under her leadership.

Of course, the rivalry between the two companies could complicate any move by Lisa Su (she and Jensen Huang are cousins, which may add another layer of complication).

Therefore, Rene Haas may be the better choice. He knows the industry very well (early in his career, he even worked at Nvidia for seven years).

Of course, the board may be far from replacing Jensen Huang, but it is easy to imagine that some people around Nvidia are considering backup plans. After all, Nvidia's brand has become somewhat tarnished because of the scandal over Jensen Huang's alleged extramarital affair with a woman suspected of being a Chinese spy.

Moreover, given that the board, Congress and the FBI are all investigating the matter, Jensen Huang will inevitably be distracted. He will be less able to issue directives to Nvidia's customers as he once did, or to devise new ways to sell chips.

It is worth remembering that Nvidia's rivals are becoming increasingly powerful. For example, Google launched a series of new AI chips on Monday, in partnership with AMD. Nvidia's already bruised shares fell 4% on Monday, while AMD surged 13% and Broadcom rose nearly 9%, not without reason.

Beyond the potential impact on day-to-day operations, Jensen Huang's status as AI's leading evangelist has also been seriously damaged. It is worth remembering that just weeks ago, he forcefully rebutted the claim that AI poses a danger to humanity. In fact, even if Nvidia's board finds that Jensen Huang did nothing improper, it is hard to imagine that the CEO's reputation can fully recover. One reason is that if the board truly clears him, outsiders will suspect that it did so because there is no obvious successor.

Jensen Huang is the core of Nvidia's operations, and that has long been no secret. He has many direct reports and, as we wrote in 2023, 'he is involved in virtually every aspect of the company's day-to-day operations'. Nvidia has no obvious number two who could replace him. That is never ideal, and right now it is a real problem. CFO Colette Kress could serve as an interim replacement, but she would not be a permanent successor.

Even so, Jensen Huang may ultimately have to step aside: investigations like this often gather momentum and escalate on their own. He may come to realize that, as a major shareholder, his own interests (not to mention those of all shareholders) would be better protected by a fresh start for the company. In an email to employees on Sunday, Jensen Huang said he was 'committed to protecting Nvidia'. That may mean he will 'fall on his sword' and take responsibility.

Coursera Fights Back Against 'Intruders'

What is going on with Europeans and established U.S. tech companies? Not only has Italian company Bending Spoons been aggressively acquiring a batch of companies (Airtable, AOL, etc.), but a Czech-headquartered activist investor, Pale Fire Capital, is also buying stakes in other companies. A few years ago, about one to two years after accumulating a 22% stake in Groupon and securing board seats, Pale Fire gained management control of Groupon.

Pale Fire has a new target. Over the past few months, the investor has been steadily buying Coursera shares, reaching a 14.7% stake, which it disclosed last week. Coursera, which merged with rival Udemy earlier this year, has not sat idly by: the company announced on Monday that it has adopted a poison pill-style shareholder rights plan. Anyone who acquires more than 15% of the shares without board approval will see their stake heavily diluted.

Coursera said the rights plan is designed to protect the company and its stakeholders from a third party gradually gaining control through open-market purchases.

In other words, Coursera appears to want to prevent Groupon's fate from happening to it. But was that really so bad? In recent years, Groupon's revenue has returned to modest growth after several years of contraction. Coursera is in a similar predicament.

AI poses a major threat to its online education business. In recent years, its growth has slowed, and third-quarter revenue fell 3% (assuming the Coursera-Udemy merger had occurred at the beginning of last year, to remove distortions from the deal in recent data). Perhaps some fresh blood would not hurt.

Source: TechFlow