NVIDIA'S OTHER RISKS

NEW YORK - Nvidia (NVDA.O) has lost its leather-jacketed CEO, and vaporized $1.3 trillion. That’s the decline in the company’s value between the first report in late October of founder Jensen Huang having a close relationship with a suspected Chinese spy, and Thursday’s announcement that he ‌was stepping down as boss and from the board of directors. To put that figure in context, it’s effectively discounting the loss of all possible sales to Beijing and more. Whether that fairly accounts for longer-term risks from Huang's departure is less clear.

Seven percent of revenue from the first six months of the company’s current fiscal year came from China and Hong Kong. That amount has declined, as US export restrictions have clamped tighter. The relevant question, however, is how much of ⁠sales to other regions actually end up in the People's Republic. Scrutiny over firms like Singapore-based Megaspeed could result in gray market, or clearly illicit avenues, shutting off.

US-headquartered companies accounted for 70% of all of Nvidia’s revenue last year, and the same amount in the current six months of this fiscal year. Meanwhile, the chip maker has lost about a quarter of its market capitalization since the New York Times first reported Huang’s suspected affair with a woman who had connections to Beijing. In other words, the market has already wiped out the value of nearly all of the company’s exports.

Of course, there are likely other skeletons lurking in the closet. Huang admitted falling short in his extramarital relationship, and more are coming to light including an alleged dalliance with an Nvidia executive. Perhaps ‌he told ⁠porkies about other things. He also had extraordinary latitude in running the company, and structuring backstops and investments in other AI firms. Even if everything else is on the up and up, finding a permanent successor will be difficult, as Huang had a knack for seeing where technology was going, but spent little thought on what came after his exit. There are already signs data-center builders may have overestimated demand growth. And Anthropic claimed this ⁠week that advances in machine learning allow rival chips to more easily be used interchangeably with Nvidia’s. In any case, the world's most valuable chip maker now trades at 12 times forward estimated earnings, which is the cheapest it has been in a decade.