Jensen Huang Resigns as Nvidia CEO: What It Means for NVDA Stock Before the November 17 Results

TL;DR

• Jensen Huang resigned as Nvidia's CEO and from its board at 8:48am ET on Thursday, November 12, effective immediately. CFO Colette Kress is interim CEO and stays CFO. Director Harvey Jones becomes the board's first chair.
• Nvidia's release gives no reason. It follows reports of two extramarital relationships, one with a woman US intelligence officials believe works for China, according to the Financial Times.
• NVDA closed $173.73 on Wednesday and traded near $158 before Thursday's open, down about 9%. It was already down 9% at 8:36am, before the release came out.
• Results are still due Tuesday, November 17, at about 4:20pm ET, and the earnings call with analysts starts at 5:00pm ET. Nvidia forecast $108 billion of revenue for the quarter; analysts expect about $109 billion.
• My view: the stock fell before the resignation was announced, so the news was already in the price. At $158, the share price is about 16 times this quarter's expected earnings per share multiplied by four. That is a price for a company that has stopped growing, and I don't expect the November 17 results to show Nvidia's growth stopping.

The Board

Nvidia's share price in order, from the October record to Thursday's pre-market, with the November 17 results and the price targets analysts set this week.

What Did Nvidia Announce?

Nvidia's board said Jensen Huang has resigned as president, chief executive and a director, effective immediately. The release went out at 8:48am ET on November 12, issued in the board's name.

Four things are in it:

• Colette Kress is interim CEO. She joined Nvidia in 2013 after finance roles at Cisco and Microsoft, and she keeps the CFO job until a permanent CEO is named.
• Harvey Jones is the board's first chair. Nvidia had never had one. Jones is a former CEO and executive chairman of Synopsys, the chip-design software company.
• The board is searching for a permanent CEO and will consider people from inside and outside the company. There is no timetable.
• The November 17 results go ahead as scheduled.

The release does not say why Huang left. Jones said the board has "full confidence in Colette and the leadership team", and that operations, customer commitments and the product roadmap continue without interruption.

Why Did Jensen Huang Resign?

Nvidia hasn't said, so everything here comes from news reports. On November 8 the board said it was opening an independent investigation after reports that Huang "has been the target of a foreign intelligence effort". The board said it had "no reason to believe that either national security or NVIDIA secrets were compromised." Huang said he would cooperate.

Huang admitted an extramarital affair on Sunday, November 8, the day the board announced its investigation. The Financial Times reported that the woman is an executive at a cloud company and that US intelligence officials believe she spies for China. On Wednesday, November 11, The New York Times reported a second relationship, with an Nvidia employee who reports to Huang, according to CNBC. The Wall Street Journal then reported the board was preparing to remove him.

None of the allegations about the women have been proven, and nothing public says any Nvidia information left the company. For shareholders the fact that matters is simpler. Huang co-founded Nvidia in 1993 and ran it ever since. He left four days after the board opened its investigation.

What Happens to Nvidia Stock Now?

The resignation itself barely moved the stock. NVDA was already down 9% in pre-market trading at 8:36am ET, on the second-affair report. After the 8:48am release it was quoted at $158.43, down 8.81% on Stocktitan's delayed feed and near $156, down about 10%, on Yahoo Finance. Investors had decided Huang was leaving before Nvidia said so.

Thursday's 9% fall came after five weeks of losses. NVDA set a record close near $239 in early October. It fell 4.3% on Monday, 5.5% on Tuesday, then rose 2.9% on Wednesday to $173.73. At about $158, it has lost roughly a third of its value in five weeks. Yahoo Finance puts that at about $2 trillion of market value.

So the question is whether the share price has fallen further than Nvidia's sales and profit prospects. Three things decide it.

Demand for Nvidia's chips does not leave with Huang. In August, Huang said Nvidia had "supply for 70% growth" next fiscal year and that customer demand was higher than that. The chips and the factory capacity behind that forecast are still there without him.

The stock is now cheap against expected earnings. Analysts expect adjusted earnings of $2.47 a share for the quarter Nvidia reports on Tuesday. Times four, that is $9.88, and $158 is about 16 times that figure. That's my arithmetic, and it assumes no growth at all after this quarter. I'd expect a multiple like that on a slow-growing company. Nvidia's revenue rose 106% from a year earlier in August.

Huang's relationships with customers, suppliers and the US government leave with him, and nobody can yet put a figure on that. He personally ran the relationships with the biggest customers, with TSMC, which makes Nvidia's chips, and with Washington, which decides what Nvidia may sell to China. Nvidia's own annual report says the company is "highly dependent on the services of our longstanding executive team". Kress has been CFO for 13 years. She has not run product strategy.

I think losing those relationships justifies a lower price relative to earnings than Nvidia had in October. Back then, investors were paying for Huang as well as the chips. I don't think it justifies pricing the company as if growth had stopped. My read is that the price now carries the scandal and an empty CEO chair. The business behind it is still the one that forecast $108 billion in August.

What Analysts Say After the Resignation Reports

Six analysts downgraded Nvidia between Wednesday night and Thursday morning, according to CNBC, and almost every target was cut. Most of these were set off Wednesday's $173.73 close, before the stock fell another 9%.

Firm and analyst	Rating now	Price target
Yorkville Ives & Co., Dan Ives	Outperform, unchanged	$300 with Huang, $225 without
Citi	Buy	$225, from $285
Bernstein, Stacy Rasgon	Market Perform, from Outperform	$200, from $400
Evercore, Mark Lipacis	In Line, from Outperform	$186, from $465
Melius, Ben Reitzes	Hold, from Buy	$185, from $315
Oppenheimer, Rick Schafer	Perform, from Outperform	Target removed
William Blair, Sebastien Naji	Market Perform, from Outperform	None given
KeyBanc, John Vinh	Sector Weight, from Overweight	None given

Sources: CNBC's analyst round-up and its November 12 market report.

Every target in the table is above about $158, the pre-market price. Even Ives's "without Huang" value of $225 is about 42% above the pre-market price. Rasgon downgraded the stock and still called the shares "almost absurdly cheap". The downgrades are about not knowing who runs Nvidia next. They are not about earnings.

November 17 Results With an Interim CEO

Nvidia reports its fiscal third quarter on Tuesday, November 17. Results are due at about 4:20pm ET and the call starts at 5:00pm ET, the same times Nvidia set before Huang left. Kress holds both jobs for the call.

• Nvidia's own forecast: $108 billion of revenue, plus or minus 2%, set in August, still with no data centre sales to China assumed. The prior quarter was $96.2 billion. The full August results are in the Q2 preview hub.
• What analysts expect: about $109.0 billion of revenue and $2.47 of adjusted EPS, the average of 44 analysts on Yahoo Finance, read November 9.
• What options implied: a move of about 10.4% up or down after the report, from option prices on November 9 with the stock at $186.64. That was before this week's fall, and I haven't been able to re-read it since.

This quarter's revenue is already settled, because the quarter ended in late October. In August, Nvidia beat its own forecast by about $3.4 billion. What moves the stock is the forecast for the January quarter, and whether Kress repeats Huang's August line about 70% growth next year. If she does, and the forecast lands above consensus, the CEO question stops being the only thing the market is pricing. Every report date is on the earnings calendar.

What Would Prove My View Wrong

Three things would change my view.

• The board's investigation finds that Nvidia information was compromised. That turns a governance story into a national-security one, and Nvidia's export licences and its standing in Washington come into question.
• The January-quarter forecast comes in below what analysts expect. Then the multiple is falling for business reasons too, and 16 times earnings stops looking cheap.
• Senior engineers or sales leaders follow Huang out. The company's annual report names the executive team as a dependency, and the board has no permanent CEO to keep them.

Two things would make me more confident: a strong forecast on Tuesday, and a credible permanent CEO named within weeks.

The One-Line Read

Nvidia's share price fell before Huang's resignation was announced. At about 16 times earnings, investors are pricing a company that has stopped growing, and I think the November 17 forecast will show it hasn't.