Super Micro's scandal-to-rebound path offers Nvidia a playbook

For dip buyers, the Super Micro parallel offers a storyline, but the more meaningful indicator will emerge from the November 17 results and any statement from the board. Governance shocks typically see markets rebound more quickly when the underlying business is clearly sound, so robust guidance would likely steady the stock more than historical examples. The danger lies in a disorganized or prolonged leadership transition, which could sustain a valuation discount and drag down the AI-related stocks that fell with Nvidia, especially Asian hardware suppliers with significant Nvidia business.

Earlier:

• Nasdaq futures slipped 0.8% amid a WSJ report that Nvidia's board is planning to oust CEO Huang
• Nvidia shares tumbled after hours following a New York Times report of a new relationship allegation involving Jensen Huang
• The New York Times reported a second relationship allegation linking Nvidia CEO Huang to a senior executive

Additionally:

• Strategy (MSTR) will be removed from the MSCI Global Investable Market Indexes after MSCI applied a new rule targeting non-operating companies

The Super Micro case demonstrates that scandal-driven selling can go too far, but Nvidia's difficulties are at the CEO level, rendering the comparison less than perfect.

Summary:

• The Wall Street Journal cites Super Micro Computer's rebound as a potential indicator that Nvidia stock could recover from the Huang turmoil
• In March, Super Micro co-founder Wally Liaw left the board after his indictment for an alleged conspiracy to smuggle servers loaded with Nvidia chips to China
• Following his departure, Super Micro stock fell sharply but has since climbed 48% from its March 20 trough
• Unlike Nvidia, Super Micro retained its chief executive, so there was no leadership succession issue
• Nvidia's upcoming challenge is its earnings report due on November 17

For Nvidia investors searching for a historical parallel, a nearby example exists. Super Micro Computer, a server maker that uses Nvidia's chips, experienced its own China-related scandal this year and has since mounted a substantial recovery. According to the Wall Street Journal, that pattern might indicate a potential comeback for Nvidia stock, notwithstanding the upheaval surrounding CEO Jensen Huang.

Federal prosecutors in March unsealed an indictment accusing Super Micro co-founder Yih-Shyan "Wally" Liaw and two other individuals of conspiring to divert roughly $2.5 billion worth of servers equipped with restricted Nvidia chips to China. Liaw subsequently resigned from the board, and Super Micro stated it was cooperating with authorities. Shares dropped sharply after his exit but have since rebounded 48% from the March 20 low, the Journal reported.

There is some reason behind the comparison. In each instance, the market initially priced in the worst-case scenario. For Super Micro, investors later reevaluated when it became evident that the core business remained strong. AI hardware demand did not vanish due to a scandal at a supplier's leadership. The same logic could apply to Nvidia, whose chips are still the industry benchmark.

However, there are key differences. Liaw was a director and senior executive, but Super Micro's CEO Charles Liang remained, so the company retained its leadership. Nvidia's issue revolves around Huang, the co-founder whose strategic vision and ties to customers and governments are integral to the firm's image. A forced departure would create succession issues that Super Micro did not encounter. Additionally, Nvidia's much larger size means its recovery would hinge on the broader AI sector as well as stock-specific relief.

Past corporate incidents offer some comfort. A number of major firms, such as Intel in 2018 and McDonald's in 2019, lost CEOs due to employee relationships and continued without enduring harm to their operations. However, neither of those companies was a founder-led enterprise at the heart of a global technology competition.

For the moment, the practical lesson is that scandal-induced selling can exceed reasonable levels when the underlying business is healthy. Whether this applies to Nvidia will depend on the board's decisions, the smoothness of any leadership transition, and the company's guidance when it reports earnings on November 17.