Nvidia's Real Risk Isn't Jensen Huang's Scandal — It's the AI Trade

Nvidia lost roughly $350 billion in market capitalization on Monday after weekend revelations about CEO Jensen Huang's affair with an alleged Chinese spy. That one-day loss exceeds the total market cap of all but 28 publicly traded American companies, according to MarketWatch columnist Mark Hulbert. And yet, per one Yale analyst, the scandal is not the number investors should be watching.

The number that matters is the AI trade's future revenue. Gautam Mukunda of Yale's School of Management argued in an interview that Nvidia's future success depends far more on the outlook for AI than on whether Huang survives the legal and regulatory scrutiny now coming his way.

His framing is blunt. Nvidia's stock is a good bet to beat the market in coming years — if AI lives up to the potential its cheerleaders claim. But if the AI trade is a bubble about to burst, a deflation Mukunda says may have already started, Nvidia will suffer huge losses that have nothing to do with Huang's personal life.

How big is the AI prize, in dollars?

Bloomberg columnist Matt Levine put numbers on the stakes on Monday. "In about five years, people and companies will be spending about $4 trillion a year on artificial intelligence. Give or take! Perhaps it will be $3 trillion, or $5 trillion," Levine wrote. He added: "Perhaps it will take six years to get to that level, or four… But the center of the distribution might be something like 'in five years, $4 trillion a year on AI, give or take.'"

Levine then sized the cash flows. On crude assumptions, $4 trillion a year of cash flow is worth roughly $40 trillion in present-value terms — on the order of half the value of the entire U.S. stock market today.

That's the pool Nvidia is fishing in. The company holds institutional advantages over other chipmakers, and if it captures an outsized portion of that total, Mukunda believes losing $350 billion of market value over a sex scandal is not a good reason to avoid the stock.

The takeaway: the scandal dented the price, but the AI revenue forecast sets the price.

Should Huang retire?

Mukunda's assessment comes with a caveat. It is not a judgment on Huang's tenure, which he credits as remarkable. Investors shouldn't "underestimate Huang's many priceless contributions to Nvidia," Mukunda said. Without Huang, the company would be worth far less than it is today — if it existed at all.

Still, Mukunda said, "now may be a good time for Huang to consider retiring in any case" — apart from the affair. Two reasons. First, Huang will spend thousands of hours with lawyers over the coming years dealing with the fallout. Second, the AI trade faces stiff headwinds it had largely avoided until now.

The market damage was already stacking up before Monday. Even before the $350 billion haircut, Nvidia had shed around $1.3 trillion in market cap since early October, per Hulbert.

Mukunda stressed he's "not saying he [Huang] should retire because he'd be bad at the job." His actual point: "hey, he's 60, he probably wants to enjoy life a bit more and the next couple of years aren't going to be great no matter what happens."

What should investors actually track?

Strip the story down and the math is simple. Nvidia's downside case doesn't require Huang's legal troubles to worsen — it requires the AI spending forecast of $4 trillion a year to miss. The upside case doesn't require Huang to stay in the chair — it requires that spending to materialize and Nvidia to keep its chipmaking lead.

Huang's affair moved $350 billion in a single session. The AI trade has moved $1.3 trillion since early October. Watch the bigger number.

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By Grace Kim, Business Bearings