Nvidia faces life after Jensen Huang. The chip maker has a couple of things going for it but there is one big risk looming over the stock.
Its shares were up 2.78% in premarket trading Friday. That comes after a 4.3% drop the previous day when Huang, Nvidia's founder and the only CEO its ever had, resigned following reports of his extramarital affairs.
How will the stock do without its visionary leader? Well, there are a few things to bear in mind.
First, the obvious -- the shares are very cheap. Barron's has backed the stock to bounce back from its recent slump on that basis. Even a mild rise from its current valuation of less than 12 times estimated earnings for the next 12 months should lead to major gains for the stock.
The chance for a valuation reset comes very soon with Nvidia's earnings report on Tuesday. So long as the company reiterates its forecast for 70% revenue growth in fiscal 2028, that should boost confidence. And there is always the chance of more stock buybacks if shares keep trading at relatively depressed levels.
Second, the leadership vacuum won't last forever. Right now the question is who can possibly take over from Huang, with CFO Colette Kress only seen as an interim CEO appointment for a company that needs technical leadership. The lack of any clear successor is an overhang on the shares.
But markets are likely to get to know more about internal candidates in the coming weeks and some external names are also likely to come to the surface. Early speculation has revolved around figures such as Nvidia's Vice President of Hyperscale and High-Performance Computing Ian Buck or the CEO of chip-design firm Arm Holdings, Rene Haas. Even the announcement of a shortlist would likely boost the stock.
However, there is one major threat to the company -- any further revelations from the scandal that ended Huang's tenure. Huang has reportedly agreed to testify before Congress, with lawmakers keen to understand whether his relationship with a suspected spy led to any major transfer of intellectual property or advanced hardware to China. With the former CEO still being a major shareholder of the company, his testimony still has the potential to move the stock.
"The next development may depend on what the investigations find...and how much scrutiny comes from Washington, especially on China and export controls," said Hendi Susanto, portfolio manager at Gabelli Funds.
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