Jensen Huang Steps Down: Will It Lead To The End of the AI Boom?

Jensen Huang pushed out, resigning as CEO of NVIDIA. And maybe there are some more cracks in the AI story still yet to come once everyone starts looking a bit more closely. NVIDIA was a huge private funder, you know, provided venture capital funding to tons of AI startups. Whether they continue to do that, I think, remains to be seen. People will be wondering. The doubt alone could be enough to kind of sink the AI trade. Obviously, the biggest story is Jensen Huang pushed out, resigning as CEO of NVIDIA, the company he built from the ground up, from scratch, starting in 1993, and built into really this incredible powerhouse, at one point the most valuable company in the world. The linchpin, really, of the entire AI boom. And now Jensen is out. Thank Just literally as we sat down to record this on Thursday, we got the news that he had been pushed out by the board. It's an incredible story and incredible drama. you B, what do you make of what happened here? Yeah, how did we get here? Over the last couple of weeks, reports have been coming out very and the first thing that came out was sort of this spy scandal. Originally, the New York Times was just reporting he had a close much. relationship to someone that US officials believe was a Chinese spy. Fast forward a few days and there was reporting that he was actually in a relationship with this woman. Her name is Alice Huang, no relation. And then Jensen eventually confessed to this over the weekend, sent out a note to staff. I think from there, he kind of tried to keep it afloat. He went into the office, tried to pretend, apologized for the affair, but then sort of was back to business as usual. At that time, we were speaking to a lot of people about this and they were sort of saying, well, I expect him. To stay, and we're recording this on Thursday when he's just resigned, and yesterday I was actually on the phone to somebody when the New York Times story dropped about the second affair that he was having. With one of his VPs and the investor at that time just said, you know, I think this is it for him. We had some reporting immediately afterwards from the Wall Street Journal that he was going to be ousted by the board. And within about 12 hours, he resigned. So we have the CFO as the interim CEO. NVIDIA has also named a chair of the board. Jeremy, where are we going from here? Yeah, I think we don't know. We're kind of in uncharted territory because Jensen was so pivotal to that company. He famously ran that company as much more so than most companies of that size as a kind of almost as like an oversized startup. He was very much, you know, Everything centered around Jensen. He famously had dozens of direct reports. At one point, as many as 60 people reported directly to him. More recently, I think it was more like 35 to 40, but still a tremendous number of people, which meant he had his hands directly in almost every aspect of that company's operation. Famously, he didn't really believe in succession planning. And they had a board that was fairly passive. A lot of those directors had been on the company's board. For decades, and they seem to let him get away with this, where they didn't seem to have anyone to immediately hand off to. I think that's one of the reasons that there was some delay maybe in pushing him out even after the initial scandal broke, the kind of the spy scandal, because, yeah, they didn't really have anyone else to go to very easily. And I think it's very unclear exactly what happens with the company going forward. Thank It's still a tremendously powerful company. It still has tremendous market share of the chips that are used to run most AI workloads you and used for a lot of AI training, you know, generates tremendous amount of cash and has its orders for these latest version of its chips are sold out, very you know, like a year in advance. So I think the immediate financial... much. Kind of impact on NVIDIA itself may not be that bad, but I think there's all these other implications for what happens in the rest of the AI industry that are going to be very interesting to see play out because as I think you've pointed out in some of your writing B, I mean, Jensen was kind of the personification of this company. And it's very hard to imagine the company being as influential without him. Yeah. I mean, someone told me Jensen is NVIDIA and NVIDIA is Jensen. He's one of the longest running CEO founder figures. And like you said, they had this interesting governance structure around him where he was completely central to the entire company. Even the way that he sort of organized the management layers. He had all these VPs that reported to him. At one point it was 60, but perhaps some other reporting puts it 30 to 40 at this point. But that is very much him at the center of this company and nothing. goes without Jensen's say-so. And this puts NVIDIA in a very vulnerable position, which they have found out in the last week or so, which is how does this company go on without such a central figure? I guess we'll have to see. I mean, I have been speaking to a lot of governance experts about this and they said, you know, if he does go, which he has now, they're going to have to restructure that company, definitely take another look at the board. And... Yeah, basically not let that central figure emerge again. But I do think this is going to do something to NVIDIA's power. They're incredibly powerful. They have this sway over policy. They invest in so much of the AI boom that they, you know, they're so central. And so much of that is Jensen rather than NVIDIA. Like he's very good friends with Trump and things like that. So I don't know. This makes them. Yeah, no, that's a good point. I mean, I was doing some reporting this week when it looked like he was teetering on the edge. That was looking at AI policy in the U.S. and what happens going forward. And it's very clear from everyone I talked to that NVIDIA's influence on U.S. AI policy had been tremendous. As you say, he was, Jensen was, Wong was the person, the tech CEO who had Trump's ear almost kind of exclusively within the last six months after kind of Elon and Trump had parted ways to some extent and they were less close than they used to be, although Elon's still somewhat in the picture. It was really Jensen that Trump was calling and leaning on for policy advice. And so that goes away tremendously. And NVIDIA as a company had fought very hard against export controls, had fought very hard against AI regulation. And I think... With Jensen out of the way, everyone I talked to said we will get export controls of some kind. The question is going to be exactly in what configuration and how are they going to be enforced. But there's definitely going to be export controls. And I think there's also a good chance of other AI regulation now passing, including perhaps some licensing on AI models, maybe even on open source AI models. Sources I talked to in DC were a little more divided on that question of exactly what happens with licensing, because they said there's a lot lot of other political factors, but, but Jensen was a key player in that lobbying too, and now he's out of the way. On the export controls. There's these three export control bills, actually, that are pending right now on Capitol Hill. They're attached to the Defense Authorization Act, which has to be voted on by the end of this year. And it has to be passed if the U.S. military is going to continue to be funded. So everyone says, you know, those are going to pass. Trump will probably sign them into law. And that's going to restrict sales of chips to China again. So NVIDIA had been hoping to kind of get back and had cut this deal with Trump, actually, to get back into selling. Some chips in China, these H200s, which were a type of chip designed specifically for that market, and the deal was that the US was going to get 25% of a cut on these sales, which is a kind of unprecedented arrangement that Jensen had made with Trump. I think that goes by the wayside now. I think they're going to be restricted from selling chips at all, really, to China. The other thing I think is going to happen here, you hear that the Commerce Department already is starting to formulate a rule on this loophole called remote access, and this Chinese companies could access the most advanced NVIDIA chips and the most advanced U.S. chips if they were housed in data centers outside of China, so in Malaysia or Thailand or Vietnam. And it was actually Alice Wong, this woman that Jensen has supposedly had an affair with, who the U.S. says is also a Chinese espionage asset. Her company seemed to be set up mostly to do this. Megaspeed, this company, mostly seemed to exist to provide Chinese companies access to the most advanced NVIDIA chips, officially kind of outside of China. Now there's accusations that they were also involved in smuggling these chips directly into China. But I think, again, we're going to see crackdowns on that kind of remote access as well. What are you hearing about the bigger picture of kind of this whole circular financing that NVIDIA was involved in? What kind of happens with that going forward? Yeah, that's a pretty big question as well. NVIDIA has been engaging in this, yeah, as you say, circular financing, which is sort of where they fund companies that buy their chips. And the real point of tension here is the neo-cloud. So these are like newer cloud companies that... Buy up NVIDIA chips, build up the data centers for companies like OpenAI and Anthropic. There is a lot of neoclouds. People say there are too many neoclouds. It's sort of one of those areas where people have rushed in and seen the opportunity. So even before all of this happened, analysts were expecting some consolidation in that market. We were going to see some winners and losers by the end of the year anyway. But NVIDIA is such a strong partner and a strong backer of these neoclouds. Perhaps we see issues in that market. The consolidation come sooner on that front. It's bad news for them. And you can see why NVIDIA wanted to fund these neoclouds, right? So somebody said to me, you know, Jensen and NVIDIA would rather have... 30 to 40 smaller customers rather than two big customers and that affects the power dynamic there. I think this could really hit the neo-clouds. I think this is going to worry the market, right? The shares were down 9% after hours trading today. Even if the fundamental business model is still there and NVIDIA's chip sales aren't going anywhere, it's a kind of ripple in the entire AI story. It hasn't been helped by the midterms. People are worried about these data centers getting off the ground anyway. And then to lose such a, well, not that NVIDIA is gone, but to lose Jensen, who was such an outspoken and influential person on all of this, it was going to make things more difficult. Yeah, absolutely. There's going to be, I think, tremendous volatility over this. As you say, I think investors, some investors were already kind of wondering if the AI bubble was bursting or was over. And I think, you know, if you were inclined to want to sell, this is a good reason to sell, a good reason to get out. And it might be a good reason for for investors to pull back from the entire kind of AI trade, which will, as you say, affect these neoclouds, will maybe affect the prospects of startups. If it doesn't look like you can exit to the public markets very easily, that's going to affect private funding as well. Also, NVIDIA was a huge private funder, you know, provide venture capital funding to tons of AI startups. Whether they continue to do that, I think remains to be seen. I think a lot of that, again, was Jensen saying, I have to support this ecosystem. Now, there's good business logic for that. So it's quite possible that whoever You know, they ultimately settle on as a CEO and that the CFO who's taking over as the interim CEO, I think for the moment they probably continue the same strategy. I don't see that this necessarily changes how the company is going to see its interests, but you never know. And I think people will be wondering. And that doubt alone is, as you say, it could be problematic. The doubt alone could be enough to kind of sink the AI trade. Yeah, exactly. I mean, I have people say to me, maybe this means everyone takes another look at what Silicon Valley sometimes calls Jensen math, which is like the circular financing. And people have been sort of willing to turn a blind eye to this, but maybe people start analyzing this more. And maybe there are some more cracks in the AI story still yet to come once everyone starts looking a bit more closely. Absolutely. And you, you, you do hear people wondering also about, yeah, about the circular financing. Are there other things there that we don't know about? I mean, I think that's the other big question. Um, the fact that, uh, Jensen seemed to have had, you know, certainly had these, uh, at least two affairs that we know of seem to be, you know, uh, have this close relationship, particularly, I think the kind of mega speed Alice Wong, uh, relationship has raised questions about his judgment, because it was kind of obvious that... Even if it wasn't obvious in any way that she was a Chinese spy, it was kind of obvious that she was skating very close to the law when it came to kind of these U.S. export controls. And for a person in his position to have an affair with her, engage as closely with her as he did, was that smart? Maybe there's other cases where he's exercised bad judgment, too, and that may come out. Well, I think that's all the time we have on this emergency episode of Fortune AI Weekly. But please stay tuned to future episodes because I'm sure we're going to be talking more about what's happening with NVIDIA with the resignation of Jensen Wong and what's happening with the entire AI boom going forward. Please join us next week.