Analysis-Investors worry the AI trade might lose Nvidia's largesse after Huang

By Ankur Banerjee

SINGAPORE, Nov 12 (Reuters) - As chip giant Nvidia's chief Jensen Huang stepped down on Thursday, investors' biggest fears were as much about the future of the multitrillion-dollar company as its ability and willingness to continue bankrolling the AI boom.

Huang's exit is yet another pressure point on the global markets' most crowded trade and came after the board of the world's dominant chipmaker, at the cutting edge of computing, met late on Wednesday to decide the longtime CEO's fate after reports of his two extramarital affairs.

The company said Chief Financial Officer Colette Kress will take over as interim CEO as Nvidia looks for a permanent successor.

Traders' first reaction was to punish Nvidia shares and those of its customers, including data-centre firms CoreWeave and Naver, while pushing shares of chipmaking rivals Broadcom and AMD higher.

Shares in China's leading makers of graphics processing units (GPUs) surged, as the leadership upheaval at Nvidia boosted expectations that local chip suppliers could win greater market share. Moore Threads, MetaX and Cambricon all jumped nearly 10%.

Nvidia shares pared premarket losses but were still down nearly 5% at 1600 GMT.

The worry in the market is that the stakes are far higher and that if Nvidia — under a different leader — backs away from a strategy of financing data centres, then the AI boom itself loses momentum.

"Nvidia has been called the 'Bank of AI'. They'll sell you the chips and loan you the money. If they have to take a step back because of what's going on, will that cut off funding to smaller companies that need it? That's an open question," said Joe Saluzzi, partner and co-head of equity trading at Themis Trading in Chatham, New Jersey.

Nvidia has been the banner stock of the AI revolution, with its chip technology ahead of rivals and enormous sales driving the share price up some 900% over the four years since the launch of OpenAI's ChatGPT ushered in the AI era.

But Nvidia has also become a torchbearer and financier, anticipating demand for ever more powerful chips while sinking billions of dollars into funding its own customers via a mix of equity investments and other promises.

"Nvidia's credit support is what makes much of this debt finance-able across the AI hyperscaler deal front," said Christopher Brown, senior vice president, investments, at Synovus Securities. "Lenders will ask what happens to that support if Nvidia's leadership or regulatory standing is impaired, and Nvidia's own willingness to extend more guarantees may be constrained."

Nvidia's board launched an investigation into Huang following reports he had an extramarital affair with a businesswoman who was alleged to be a Chinese spy. A subsequent report about another affair came out ahead of Wednesday's board meeting.

Shay Boloor, chief market strategist at Futurum Equities, said Nvidia's revenue would not suddenly plunge after Huang's exit and, therefore, the bigger concern was about the future, given Huang was the person with the vision for computing.

"Replacing that strategic vision ... is an enormous challenge," he said.

NVIDIA SINKS, TAKES SOME, NOT ALL, ALONG

Huang's departure leaves a vacuum at the top of the roughly $4 trillion chipmaker that he co-founded and built over more than three decades to become the top supplier of chips and the nexus of the US-China technology rivalry.

Chipmakers in Asia, whose stocks have soared with Nvidia and the AI spending boom, but lately sagged on worries about funding costs and the demand outlook, slipped. [MKTS/GLOB]

Nvidia listed $164.5 billion in financial commitments in its most recent earnings report, with an obligation capped at $105 billion on an OpenAI data centre in Ohio and lease and other capacity guarantees topping $50 billion.

In August, it said it had partnered with six major financial institutions including Apollo, BlackRock and Blackstone to launch compute financing platforms aimed at raising over $500 billion in third-party capital for AI infrastructure. Huang said then the company had the option to backstop up to $125 billion, or 25% of the potential deals.

"The interlocking deals that Nvidia has with so much of the industry raises the question into whether that created more stability or more fragility," said Steve Sosnick, chief market analyst at Interactive Brokers in Connecticut.

Nvidia is also one of the investors in Claude chatbot creator Anthropic's initial public offering. The listing this month is set to serve as a test of investor appetite for all things AI.

Shares in Nvidia-backed data-centre operator CoreWeave, which surged on Wednesday on upbeat earnings, fell more than 6%. Shares in South Korea's Naver, in which Nvidia took a $1 billion stake by financing a data-centre expansion, also dropped 6%.

To be sure, investors said, the quality of Nvidia's products is not likely to change, and change at the top won't quickly hit demand.

"Nvidia's core asset is its advanced GPUs, which still have no real substitute in the market," said Anna Wu, founder of Floodlines Research. "The AI trade rests on that demand, not on one individual."

But when the company reports earnings next week, the focus will inevitably be on leadership, strategy and whether a sales outlook formed under Huang still holds up under a successor.

(Reporting by Ankur Banerjee in Singapore, Tom Westbrook in Sydney, Prathik Jayaprakash, Anhata Rooprai, Lakshmi Tharuniyaa, Johann Cherian in Bengaluru and Li Gu in Shanghai; Editing by Thomas Derpinghaus, Vidya Ranganathan, Mark Potter and Emelia Sithole-Matarise)