Nvidia: Watching Potential Succession Plan and Any Signs of Customer Impact
Amid reports about a second affair and Huang’s possible ouster, we think Nvidia stock remains undervalued.
Key Morningstar Metrics for Nvidia
- Fair Value Estimate: $310
- Morningstar Rating: ★★★★
- Morningstar Economic Moat Rating: Wide
- Morningstar Uncertainty Rating: Very High
Nvidia Stock Update
On Wednesday after US market hours, The New York Times reported that Nvidia founder and CEO Jensen Huang had a second extramarital relationship with an executive. Soon afterward, The Wall Street Journal reported that the Nvidia board is preparing to oust Jensen Huang.
Why it matters: We remain stunned and disappointed by the news that could lead to the ousting of one of this century’s most prominent business CEOs. We can only assume Nvidia already has an accelerated succession plan underway.
- Ian Buck, VP of Nvidia’s hyperscale and high-performance computing business, is well known to outside investors. He strikes us as a logical successor to Jensen Huang, but we have no insight into the board’s thinking on a replacement.
The bottom line: We maintain our $310 fair value estimate, Very High Uncertainty Rating, and wide moat rating for Nvidia amid the latest news. Shares fell as much as 8% after hours and appear fundamentally undervalued to us.
- Deception may have occurred at the CEO level, but it hasn’t crept into Nvidia’s financial forecasts amid the artificial intelligence boom. We still forecast high near-term and medium-term demand for Nvidia’s gear, given insatiable AI computing growth.
- We’ll keep looking for signs of whether this turmoil will lead to any customer order cancellations or financial agreements unraveling that might affect our fundamental revenue forecasts.
Big picture: We think Nvidia’s wide moat is underpinned by high switching costs around its Cuda AI software ecosystem, and hardware and networking product design expertise. These assets should enable Nvidia to keep building best-of-breed data center products, regardless of the CEO.
- That said, some large AI firms have understandably supported AMD and designed in-house chips to reduce their reliance on Nvidia. We’ll continue to look for signs of whether Nvidia’s turmoil will cause more customers to do the heavy lifting needed to move toward other AI accelerator vendors.
Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
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