Why you will pay for Jensen Huang's indiscretions

The reaction was swift and brutal.

Jensen Huang's resignation, while expected, sparked yet another nosedive in the value of the company he has led for 33 years, initially shedding another 14 per cent before recovering to end the day down almost 5 per cent.

For the past week, ever since revelations that he had been romantically involved with a woman suspected of being a Chinese spy, Nvidia's share price has been pummelled on fears the founder may be forced out.

Once reports of a second extramarital affair emerged, with Nvidia executive Kimberly Powell, his fate was sealed. Now, reports have surfaced of at least another in-house relationship.

Since October 6, the company has been stripped of 30 per cent of its value, as the scandal surrounding Huang added to broader concerns that higher interest rates and a less benign US government after the midterms would slow the rollout of AI.

The Economist magazine was typically blunt in its assessment of Huang's cavalier disregard for the consequences of his behaviour.

The sun king flames out

Nvidia is no ordinary company.

It sits smack in the middle of the AI revolution.

It is the sun that powers the AI solar system, as governments and corporations revolve around it.

For the past four years, a stock market boom has been driven by a single technology, underpinned by one company, driven by just one person, Huang.

Nvidia, which began life making chips for computer games, was thrust into the spotlight by an insatiable demand for its product, as the only supplier of the chips that could power the next industrial revolution.

Huang not only put himself front and centre of that boom, he has meticulously ensured that no-one else is equipped to run the operation.

He, and he alone, has controlled everything from financing to chip design, ruling over his domain with complete authority.

Where most chief executives would have a handful of senior executives reporting to them, Huang has 60. Or had, until yesterday.

Justin Wolfers, the Australian-born professor of economics at the University of Michigan, says Huang's management style has left the company deeply exposed.

"When you run a company worth $US4.5 trillion that is powering the next industrial revolution and you can't be bothered to figure out a coherent management structure, so that when you get caught with pants down, your company is worth much less, that is an extraordinary fail of management and the board."

Huang's demise raises questions about the long-term future of the company and adds to the fears that the AI investment boom is ripe for a fall.

Alice Huang, the suspected spy, has gone to ground and is reportedly back in China.

Beijing has since denied all accusations of espionage. But it would appear to have been one of the most successful honey-trap missions in history.

Long live … who?

After emergency meetings until late last night Australian time, the company passed on the mantle to its chief financial officer of 13 years, Colette Kress.

At this stage, she is simply keeping the seat warm while the board looks for a permanent replacement. But she would have a better handle on the complexity of the operation than anyone else.

Nvidia's high powered chips don't come cheap. And to keep that solar system running, the firm has helped finance many of its customers to ensure their expansion also ensures ongoing demand for its technology.

The Australian group Firmus, which spectacularly failed last month to raise funds for a listing on the Australian Securities Exchange, is one such group.

Another is the US firm CoreWeave — with a similar operation to Firmus — which this week announced it would be relying less on traditional debt finance and more towards Nvidia, its main supplier.

Kress will also need to navigate the now-treacherous waters in Washington as a more hostile Senate and House come to grips with Huang's indiscretions and the potential fallout from the spy scandal.

Nvidia is due to release its results next week which, if the money-making machine continues its spectacular performance, may give her an opportunity to soothe investor fears.

But the very next day, on November 18, Huang will appear at a congressional hearing to be interrogated over his relationship with Alice Huang, the alleged spy who loved him.

An executive at a Singaporean firm call Megaspeed, which was a customer of Nvidia, Alice Huang is suspected of funnelling billions of dollars of Nvidia chips through to Chinese AI firms, circumventing a US ban on sales to China.

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Chipping away

Australians have a lot riding on the AI boom and, by default, Nvidia.

More than $1 trillion of Australian superannuation funds are invested offshore, the bulk of which has been directed to the biggest American technology companies.

And for the past four years, that money has chased the AI boom, explains Jun Bei Liu, portfolio manager and founder of Sydney investment firm Tencap.

"Nvidia has been central to the whole build-out of the AI infrastructure," she says.

"They have been a big investor into businesses like cloud businesses and neoclouds and then also the data centre businesses."

The 20 per cent fall in Nvidia's stock in the past week would be enough to impact super fund returns, she says, but she is more concerned about the long-term impact, given the company's central role in the future of AI.

Huang was the visionary that created the company and drove every key decision it made regarding its technology and its strategy.

Without him, the future has just become a great deal less certain.

The uncertainty over Nvidia has added to the turmoil already engulfing the technology industry as pressure builds on governments to rein in the industry's power and its reach over the lives of ordinary citizens.

As Wolfers explains, the US tech giants have far more power than any other corporations in history.

"We have a very small number of firms run by a small number of executives that are set to power the next industrial revolution," he said.

"They have more power than governments, they are cosy with Washington and they will shape the lives of Australians no less than they will reshape US lives."

While the Trump administration may be unwilling to stand in the way of the industry, given the president's close personal relationships with its leaders, it may well be financial markets that pull the handbrake.

Growing doubts over profitability, the enormous amounts of capital being poured into AI development, and the prospect of delays to the physical rollout forced on the industry by seething community anger over data centres have already rattled confidence.

And now this. A pillar of the entire edifice has been shown to be defective.