Could Jensen’s Exit Actually Be Good for Nvidia?

Zaid Admani (0:00)

Public.com presents The Rundown, your daily market update in 10 minutes. My name is Zaid Admani, and today is Friday, November 13th. In today's episode, we'll break down this morning's inflation report and why December rate hike now looks like a done deal. We'll also break down what Nvidia could look like without Jensen Huang, and why his departure could be a good thing for Nvidia stock, but maybe not so much for other AI stocks. Then stick around to the end of the show to find out the reason why toy sales are booming in the US. We got a great show for you today.

Let's go.

Wall Street kind of shrugged off one of the biggest corporate bombshells in history yesterday. The S&P 500 and NASDAQ each fell about 0.4%.

And given the news, I'm surprised it wasn't more. Obviously, Nvidia is the center of the action here after Jensen Huang resigned as CEO. Nvidia stock opened down around 13% yesterday, but recovered a big chunk of those losses throughout the day and closed down just 4.3%. It looks like a ton of people came in and bought the dip, especially retail investors. According to Vanda Research, in the first 30 minutes of trading on Thursday, $111 million of Nvidia shares were bought, which is the largest opening half hour ever for Nvidia. In fact, it's 40 times the normal volume for Nvidia's stock at the open. So despite Jensen stepping down, investors seem to be confident in the company. We'll actually talk more about why that is in a bit. Now, this morning, the big macro story is the October Wholesale Inflation Report. The Producer Price Index, or PPI, rose 0.3% in October compared to September. Now, that was a little better than the 0.4% increase that economists were expecting, but if you look at Core PPI, which strips out food and energy, that rose 0.3%, which was right in line with expectations. But if you compare October's wholesale prices to October of last year, wholesale prices were up 6.5%, which is the fastest pace in nearly four years. So yeah, inflation is still very much a problem, and the market seems to be freaked out about it. Both the S&P and NASDAQ are down around 1% at the time of this recording. You know, at this point, a December Fed rate hike seems inevitable. I think the question now is how big of a rate hike are we gonna get? And how many rate hikes will we get next year? Now we still have a few more weeks until the Fed meeting. A lot can change between now and then. We'll continue to stay on top of it all. And we're still tracking earnings as well. Next week, we're gonna be hearing from Nvidia. That's gonna be crazy. We're also gonna be hearing from Disney, Target and Walmart. So a lot to talk about as we get closer to Thanksgiving. Definitely get subscribed to the podcast if you haven't already, and tune in every day to stay in the loop.

Let's run through some headlines. And we're talking Nvidia once again. Now that the initial shock of the Jensen Huang resignation has settled in, Wall Street is trying to figure out what this means for Nvidia and the AI boom at large. And as I just mentioned, retail investors still seem to be bullish. The dip buying yesterday was massive. But if you zoom out though, Nvidia stock has dropped 30% from its peak back on October 6th. And right now, Wall Street analysts are split on whether losing Jensen is a disaster for the stock, or maybe even a blessing in disguise. You know, Jensen was a classic key man risk for Nvidia. He was the face of the company. He was the face of the AI boom for that matter. And at the company, he kind of ran in like a startup. You know, he had 60 direct reports, which is absolutely crazy. There was no succession planning at all. From what I've read, Jensen was still running Nvidia like a gaming company, and not like the most important company in the world. So this could be a chance for Nvidia to kind of reset all that and become more professional. And you know, Nvidia still has a dominant position with their technology and a long list of customers, not to mention their CUDA software platform gives them a massive moat as well. Plus, there's not going to be an impact to their innovation in the short term because Nvidia plans their chip and system developments years in advance. The products that are already in development aren't going to disappear because Jensen is gone now. And if you just look at the numbers for the company, I mean, over the next four quarters alone, Nvidia is projected to generate over $260 billion in free cash flow. That's on top of the nearly $100 billion in cash the company already has in the bank. So Nvidia still has a dominant position today when it comes to their AI chips. They'll likely keep that position in the short to medium term. The harder question to answer, though, is whether they can keep that dominant position over the next several years without Jensen's vision guiding the strategy. He was the guy who pivoted Nvidia to be an AI company a decade ago before anyone knew what ChatGPT was. So there's going to be a lot of pressure on whoever the next CEO is to keep that vision and innovation going. And look, we have a great example of a tech company doing just fine after replacing a visionary CEO. Now, when Steve Jobs stepped down as CEO of Apple in 2011 for health reasons, there was a huge question on whether Apple could thrive without him. Obviously, Apple struggled in the 90s without Steve Jobs, but when Tim Cook took over, he did a fantastic job. He scaled up Apple's operations and Apple went on to become one of the most valuable companies in the world. In fact, they're back to being number one again. Now, this doesn't mean that Nvidia will follow in the same path. I mean, Apple had a succession plan in place. Nvidia is kind of scrambling right now, but it does show that losing a visionary founder doesn't automatically mean that the company is cooked. No pun intended. So, you know, I think Nvidia is going to be fine. I think the bigger question, though, is what's going to happen to the AI industry at large? Nvidia played a crucial role as the AI industry's financier. Jensen was making all these deals and investing in all these companies across the AI ecosystem. In fact, a lot of people accused Nvidia of doing circular financing deals. And I imagine the next CEO won't have the same level of influence that Jensen had, and they probably don't want the spotlight on Nvidia that came with all these circular financing deals. So I wouldn't be surprised if Nvidia scaled back some of those investments and deals, which could slow down the AI ecosystem as a whole. Like, what's going to happen to the data center build out if Nvidia isn't backstopping some of the deals like they have been over the last couple years? So I think that's going to be a key question and it's only going to add more pressure to some of the companies that have been dependent on Nvidia, like CoreWeave. On the flip side though, if Nvidia isn't investing in all these AI companies, they could invest more in their R&D and also have more cash left over to do more share buybacks and pay out dividends. Again, it's possible that Nvidia shareholders could be winners here, at least in the short to medium term. I think the last big question here is what's going to happen with China? Jensen lobbied hard in Washington DC to push back against US chip export restrictions. And with him gone, I mean, lawmakers could pass stricter export rules that could impact Nvidia's sales overseas. So I think that could be the biggest impact on Nvidia's business in the short to medium term. We might learn more about Nvidia's future next week. The company does report earnings on Tuesday after the close. I'm sure interim CEO Colette Cress is going to get asked a ton of questions about Nvidia's future. So I'll definitely be tuning in to that earnings call. I mean, that might be the most tuned in earnings call in history. I might have to live stream or throw a watch party for that one because there is going to be so much buildup leading into that earnings call.