Key Points
Nvidia chief Jensen Huang stepped down following allegations of affairs.
Huang, Nvidia’s founder, has been instrumental in the company's successes over the years.
Investors may be asking themselves one key question right now: Can Nvidia (NASDAQ:NVDA) ever be Nvidia again without Jensen Huang? The founder and chief executive officer stepped down today following allegations of affairs. On Sunday, Nvidia's board of directors said it would investigate Huang's relationship with a woman U.S. intelligence officials say is a spy for China. Later this week, The New York Times reported that Huang had a separate affair with an Nvidia executive.
Nvidia stock has been a sure winner for investors during this artificial intelligence (AI) boom thanks to the company's technology -- but Huang, as a visionary and strong proponent of AI development, has also played a crucial role in Nvidia's successes. Considering the full picture, is this top AI stock still a buy? Let's find out.
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Nvidia's board launches an investigation
So, first, let's catch up on what's unfolded in recent days. As mentioned, Nvidia's board last weekend said its investigation comes "in light of recent reporting that founder and CEO Jensen Huang has been the target of a foreign intelligence effort." The board said it was confident in Huang and his team but would consider all related information.
Huang, in an email to staff obtained by CNBC, apologized for being unfaithful to his wife and expressed his commitment to Nvidia and to cooperating with the investigation.
Then on Wednesday, The New York Times reported that Huang had a separate affair with Kimberly Powell, vice president of healthcare at Nvidia. The board met later that day to discuss the company's future, and Huang resigned early Thursday morning. Nvidia said current chief financial officer, Colette Kress, would take on the role of interim CEO. Nvidia stock fell as much as 14% in early trading following the news, then rebounded later.
Now, let's consider what the news means for Nvidia stock. The company dominates the AI chip market with its top graphics processing units (GPUs) and related products -- and the quality of Nvidia's products is unlikely to change with the departure of Huang. Demand has been strong quarter after quarter, and I wouldn't expect to see a sharp shift in the weeks and months to come. Nvidia is rolling out its new Vera Rubin platform right now, and this should drive significant revenue growth.
Nvidia's long-term strategy
The big question is long-term strategy and direction. Huang, who had 60 employees reporting directly to him, didn't have a succession plan and was the visionary guiding Nvidia over the years. He made crucial decisions, such as the one about a decade ago to shift from a focus on the gaming market to a focus on AI. This was a game-changing move, one that would drive Nvidia's market cap past $5 trillion at its peak, making it the biggest company, and push earnings to record levels well into the billions of dollars. Huang's successes gave investors reason to trust him for the company's next moves – this, along with the general growth forecast for the AI market, made Nvidia stock a fantastic buy.
Should you buy Nvidia stock?
Now, without Huang at the helm, investors are facing a fair amount of uncertainty. So, should you buy, hold, or sell the stock in such a situation?
Nvidia stock could encounter volatility in the days to come, particularly since it's also scheduled to report earnings Nov. 17 after the bell. Right now, I see the naming of Kress as interim chief as positive. Kress has been with Nvidia since 2013, meaning she's accompanied the tech giant through its growth as the AI boom unfolded. This is a very important point. She's also spoken extensively during recent earnings calls and clearly has a deep understanding of Nvidia's strategy and the general AI market.
Nvidia said Kress will serve in the role while the company considers candidates from within and externally. Leadership is such a critical element that it's difficult to commit strongly to a stock during a time of transition. Even though the stock is dirt cheap at 17x forward earnings estimates, risk-averse investors may remain on the sidelines until a permanent leader is named or we have more information regarding the long-term strategy without Huang. And investors with a very large Nvidia stake might consider trimming it to reduce risk.
That said, growth investors who don't mind some risk might still pick up a few shares of Nvidia at today's bargain levels. The company's product strengths haven't changed, and it's unlikely the next leader would dismantle what Huang and his team have built over time.
Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.