Markets Insight: Who is afraid of the über-CEOs?

What a drama: Jensen Huang, founder of the chip manufacturer Nvidia and guru of the AI ​​boom, had to admit to an affair with a woman suspected of being a Chinese spy. Nvidia's board of directors announced an independent investigation and, according to US President Trump, the FBI is also investigating.

The danger of Huang losing his job as all-powerful CEO is real. On the stock market, two trading days were enough to destroy around a trillion dollars in Nvidia's market value.

Nvidia is also coming under pressure because there is no clear succession plan to replace the CEO. Dozens of reporting lines in the company go directly to the CEO, ensuring that no one but him has a comprehensive overview of the group.

The Huang scandal is not an isolated case. On the contrary, a pattern has long been emerging: Time and again, dominant founders and CEOs in the US tech industry have triggered massive drops in share prices through personality cults and miserable corporate governance.

Character traits such as absolute self-confidence, charisma and the courage to make lonely decisions can help turn a small start-up into a billion-dollar corporation. But it is precisely these characteristics that can pose a risk for established listed companies.

The most prominent example is Elon Musk. With his dominant and often erratic manner, he became a burden on Tesla shares in several ways. In 2022 the price collapsed by around 65 percent. The most important cause was the chaotic and extremely expensive purchase of Twitter, for which Musk had to sell billions of dollars in Tesla shares.

Self-aggrandizing founders often fail even before going public, like Adam Neumann with his coworking company WeWork. Before the planned IPO in 2019, the valuation collapsed from $47 billion to less than $10 billion within a few weeks. The issue had to be canceled. Bankruptcy followed years later.

At Uber, founder Travis Kalanick resigned in 2017 after a massive loss in valuation, and investors blamed him for the toxic corporate culture. Uber only managed to go public in 2019 without Kalanick.

Compared to other Silicon Valley companies, corporate governance at Nvidia even looks comparatively good. While tech icons like Mark Zuckerberg from Meta or Google founders Larry Page and Sergey Brin have unassailable control over their companies via multiple voting shares, Nvidia adheres to the principle of “one share, one vote”. And Huang only holds 3.6 percent of the company's shares.

The pattern of dominant founders also exists in Anthropic's mammoth IPO. The seven founders around CEO Dario Amodei secure permanent majority and control over the AI ​​pioneer through special shares.

Investors who bet on companies with dominant founders are essentially betting on these super-egos. This doesn't always have to go wrong. Since its low in early 2023, Tesla shares have gained more than 250 percent despite Musk's controversial forays into politics. But investors must be aware that they are taking risks that have nothing to do with the usual economic parameters.