Nvidia stock plunges almost $400bn after Chinese spy scandal

This is the day, the week, to join some dots. Why, all around the world are people so excited about the black leather jacketed boss of a chip maker, NVIDIA, a company you may barely have heard of, having an affair with a woman who may, or may not, be a Chinese spy. Answer, this man, Jensen Huang, is one of the grand titans of the tech age. And the empire he and some others are building, and which promises or threatens to completely change all of our lives, is suddenly looking fragile. How many dollars worth of Nvidia shares vanished because of this alleged honey trap? Answer, more than $325 billion just this morning. That's quite a lot. Indeed, it's coming to the time to ask whether the great tech bubble driving the world economy could become the great tech pop. Stock markets have been heavily dependent on the so-called magnificent seven tech and AI companies, Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, Tesla. These need gargantuan spending for their data centers, a bigger proportion by far of the American national wealth over the next few years than the United States spent on the railroads during the 19th century railway boom or on highways when motor cars arrived. Now, raising enough outside money is hard. It was described by Martin Wolf of the FT recently as depending upon an increasingly complex and non-transparent financial structure. Now, into all of this march the American people, who last week voted against data centers in referendums across the country, and in the U.S. midterm congressional elections voted against big tech time and again in Texas, Ohio, Georgia, Michigan. The Americans, like the British, have been told that the AI world, as shaped by Elon Musk and Sam Altman, Mark Zuckerberg, and yes, Jensen Huang, is their inevitable future. Now they say, oh no it isn't, goodbye and no thanks. So what does that mean, once we've joined those dots? A small number of companies pumping up the markets by doing very complicated things the rest of us either can't understand or choose not to concentrate on, run by swaggering moguls convinced of their own brilliance, but who in the real world are growing increasingly unpopular. Does all of this by any chance remind you of anything? It should. I suspect of course it does. That era of high octane, high finance, just before the financial crash which destroyed so much of the prosperity we had taken for granted before 2007. I'm not saying it's about to happen again. I am saying just watch this very closely. Realize why the behavior of Jensen Huang matters to you. Remember what a fragile, interconnected, intertangled, technical world we all now live in. And just perhaps, when the government suggests stocking up with cash and food and water and batteries, do it. Well, let's talk now to Ross Gerber, the CEO, president and co-founder of Gerber Kawasaki Investment and Wealth Management of California, who is a large investor in both Tesla and NVIDIA. Thanks very much indeed for joining us again, Ross. First of all, your reaction to the news about Jensen Huang today. Obviously, it's disappointing that this whole thing is going on because it's a big distraction from what's actually really happening in the AI world. And it's just an unfortunate incident and hopefully doesn't lead to larger consequences for Jensen, who is one of the architects of the AI future. So right now we're taking it for what it is. Unfortunately, most of the CEOs that invest with are not people that we necessarily want to hang out with or are morally, you know, somehow above board all the time. And just the same, we've seen it with our politicians and the Epstein files here in the United States. So at least he wasn't in the Epstein files, which is, you know, it's something, right? So, you know, it's a bad incident, but it doesn't change anybody's orders for NVIDIA chips. And so far as I can tell, over the course of the day, His position inside the company remains relatively solid, partly because there's nobody else to replace him. There's no deputies. There's nobody who is as charismatic and clear-sighted in terms of the business as he is. Well, as a shareholder, I don't want anybody else running the company but Jensen, and I think it's an unfortunate situation, and it will pass, as all these things do, and I want Jensen running the company. So, as a shareholder, I don't want that to change. For people listening, let's help them understand a little bit about why it's such an important company. It's not just that it's making so many of the absolute cutting-edge shares—chips, rather—which the Chinese want, hence the— the honey trap, if that's what happened. But also, it invests in a lot of the other AI and big tech companies. That's correct. I mean, NVIDIA is sort of the brains of AI. They make not only the chips, but the interconnected software and really whole systems for companies to be able to really accelerate their growth by investing in AI technologies. So people, governments, as well as hyperscalers are all. Buying NVIDIA chips and systems that are being built with NVIDIA chips or leasing them from other companies because their chips are the best in the world by far. And so I think it's important to separate what they make and how important it is to our future and to businesses' future to this unfortunate situation. And as I said, this comes after those midterm elections all across America. America. Right. How big a jolt, how big a reverse do you think these elections in terms of, you know, the referendums on the data centers, but also some of the people who got elected on a kind of anti big tech platform? How big a reverse is that for tech? I don't see it that way. I think that the big tech leaders that you have brought up are some of the least liked people in the world. They've done a horrible job selling the world on AI and their behaviors typically is abhorrent. So I get why society is pushing back because the faces of AI are basically not likable people. But when you actually look at all of us are using AI, including you. And so as we continue to use these services as they make tremendous Tremendous efficiencies in our personal and business lives. It's just going to keep growing and growing and growing. And so, as I said, I think all these companies need to do a better job taking care of people, making smart decisions for everybody, not just themselves. And so, the election, I think, was a referendum more on Donald Trump's policies than data centers in particular. And I think having legitimate, you know, oversight versus just tech running over everybody, it makes sense. So I don't look at this as a negative at all. AI data centers are going to be built, and they're going to be built in a responsible manner, and that's not a bad thing. And perhaps the democratic involvement helps things go along. That's right. Is there an alternative way of selling the AI future that is more pro some kind of regulation, some kind of guardrails? I'm thinking there's a big IPO coming quite soon, I think, for Anthropic, for instance. Do you see another way forward from what we've just seen? Well, I've been saying it for a long time. I can't figure out who should be a regulator over AI because that's a really fraughtful thing, having governments as a regulator, because they're typically not very adept with understanding technology. But I think that, you know, things like these elections are sort of like self-regulatory systems where... Now we have a shift in our government to people that have a different approach to dealing with this type of growth. So as I said, I think it's actually good for all these companies to slow down growth just a tad. It's not a bad thing. You don't want to overspend. And just the same, you want to create a sustainable future. For everybody, we all know that AI is going to change our future. And if they start selling the positives of AI, which is like planning your next vacation to England, what should I do? And helping you book your tickets and your hotel rooms and all this kind of stuff, it's certainly wonderful. And if you're trying. And to learn about anything, or I was just at high school events for my kid, and everything now is talking about how AI can accelerate your kid's education into the future. So this is not going away. It is massive like the internet or the railroads, which you compared them to earlier. And investors should pay attention. There's rocks in the road, but this is the way to wealth. Don't be confused. Now let's get the thoughts of Rich McDonald, the former hedge fund manager and host of the podcast The Art of Investing. Rich, do you see some dangers here of an AI bubble bursting? I'd say the bubble's burst, Andrew. We spoke back in May and we were talking about the bubble then. And since then, the stocks, some of them down 40 to 60 percent. And now we see what's happened with NVIDIA. An unfortunate incident indeed, as your last caller mentioned. Yes. And we should explain again to people that it's particularly unfortunate because of the race between the Chinese and the Americans to dominate this new technology. Very much. are based around super chips which nvidia make and therefore the chinese desperately want And this is the question, forgetting the moral side of it or the national security incident, you know, a la Profumo Christine Keeler. We're talking about how many chips have actually made it into China because the NVIDIA weren't allowed to sell their top chips into the country. But now this opens the question, where are they going to this woman's company in Singapore? Which were then making their way into China. So we could see that NVIDIA's chip sales have been inflated. And that's the big risk to the share price and why it's down 5% today. Not so much the ethical side of it. A lot of these big AI companies, as we both know, are kind of investing in one another. There's a kind of tangled circular investment thing, which suggests to me that if things start to collapse properly, it could draw down lots of companies, not just one. That's right. Thirty two investments Jensen has made into companies that essentially come and then they can afford to buy his chips. So there's a there's been a big circular funding movement going on. And that's I'm surprised that the Nasdaq is so strong today, considering that the company at the heart of everything, It's down 5%. And let's face it, Andrew, you know as well as I do that journalists never come out with their top part of the story in the first allegations. Is there more to come out? And certainly once Jensen goes in front of the... And the committees next week of the US government, there's going to be a lot of tough questions asked. Now, I think NVIDIA is the second largest company in the world, right at the top of the show. I suggested there might be some kind of possible parallel with what happened in 2007, 2008. Is that wildly hyped, wildly too much, do you think? Or do you share some of that anxiety? There are probably other parallels because there's... Huge potential in these, you know, in AI. We absolutely agree with your last guest there. We all use it and it's going to make incredible productivity gains. So I wouldn't say so much that it's like the housing crisis of 07. It's not like the dot-com boom because there's huge profits there. However, if people are invested, what they've got to ask themselves, Are the hyperscalers, so that's the big names like Meta, Amazon, Google, are they eventually going to be able to make money from this? Or is it going to be more like the telcos back in the year 2000 when you had those crazy auctions? And those auctions meant that the telecom companies like Vodafone never made money from their investments. And that could be what we're seeing for these hyperscalers at the moment.