It's hard to imagine a worse week for Jensen Huang and Nvidia than the one they just had. Huang lost control of the company he spent three decades building into the world's pre-eminent AI juggernaut. Nvidia's share price has fallen roughly 15%.
The chip maker successfully named a new interim CEO without tanking its stock price much further Thursday. But its path forward -- if not on Wall Street then definitely in Washington -- is about to get much rockier.
Lawmakers on both sides have long criticized the Trump administration's lax controls over Nvidia's chip sales abroad, which were eased last year in part due to pressure from Huang. That criticism is already growing louder, and there will be strong legislative pushes for tighter export controls on chips.
For Nvidia, the main concern will be stabilizing the company and reassuring shareholders and partners during this transition period. That said, the days of frictionless exports to Southeast Asia are likely coming to an end. The intensified scrutiny on Capitol Hill should also concern the broader AI industry, which has benefited from Huang's coziness with the White House and advocacy for a relaxed regulatory atmosphere over the past several years.
Prominent Democrats are already demanding investigations into Huang and his former company's sales to Megaspeed, the Singaporean tech firm run by Huang's paramour, an alleged Chinese intelligence asset, that leased Nvidia chips to Chinese customers and likely smuggled several hundred thousand to China. Though their congressional leadership will soon end, Republicans are also calling for investigations; the chair of the House Foreign Affairs Committee said Thursday he'll subpoena Huang if he doesn't comply with a requested briefing next week. Senate Banking Committee Chair Tim Scott (R., S.C.) has summoned Huang and Commerce Secretary Howard Lutnick, who is now facing scrutiny of his own, to appear before his committee next month.
There is also bipartisan consensus emerging to strengthen trade restrictions on advanced AI processors. Sen. Jim Banks (R., Ind.) and Sen. Elizabeth Warren (D., Mass.) said this week that the allegations against Huang increase concerns around the national security implications of AI chip export controls. They called for Congress to pass the AI Overwatch Act, which would codify existing AI chip restrictions and allow Congress to review and block AI chip exports, as part of the National Defense Authorization Act.
Lawmakers also want to close loopholes to which the Nvidia-Megaspeed saga drew attention. The Remote Access Security Act would limit Chinese companies' ability to rent controlled AI chips outside of China, closing a regulatory gap that has allowed Chinese AI companies, such as Alibaba and ByteDance, to train their advanced large-language models on Nvidia chips in Southeast Asia. It isn't only Congress that is interested in strengthening these regulations; the White House has reportedly also started pushing to close this loophole.
These measures would police sales and access far beyond China's borders, potentially limiting Nvidia's sales to third-country buyers. This could spell trouble for cloud service providers and data center operators in Singapore or Malaysia that rent computing power to Chinese companies or serve as pass-through entities to divert those chips into China.
Megaspeed and its affiliates reportedly bought almost $5 billion worth of Nvidia chips over the past couple of years. How much Nvidia's bottom line will be affected by tighter trade policy isn't clear, but it should concern investors, especially as voters voiced their opposition to the rapid data center buildout in the United States.
Aside from export controls themselves, Nvidia's position as the industry's lead chip policy influencer is going to change. Over the past two years, Huang has played a critical role in shaping the Trump administration's approach to technology controls and trade policy. Huang is a personal friend of Trump. Without that relationship, the company will lose influence in the White House, and its entreaties to maintain tech links with China will ring hollow.
It's never easy for companies to lose talismanic CEOs. But Nvidia will have to navigate a leadership transition just as the tide is turning back toward taking a tougher approach to Beijing on trade and technology.
Guest commentaries like this one are written by authors outside the Barron's newsroom. They reflect the perspective and opinions of the authors. Submit feedback and commentary pitches to ideas@barrons.com.
Hanna Dohmen is a senior research analyst at Georgetown University's Center for Security and Emerging Technology. Sam Bresnick is a research fellow and Andrew W. Marshall fellow at the Center.
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