Could alleged spy scandal loosen Nvidia’s stranglehold on the AI chip market?

Jensen Huang, the now former CEO of Nvidia. (Reuters/Yonhap)

The resignation of Nvidia CEO Jensen Huang amid allegations of multiple extramarital affairs, including an alleged honey pot by the Chinese, has spurred speculation about whether Nvidia will lose its dominant position as a supplier of chips for the artificial intelligence industry.

 Nvidia shares rose 2.9% on the New York stock market on Wednesday only to plunge more than 8% in after-hours trading as allegations surfaced about a second affair — this time, with an employee.

 The company’s market cap slipped to third place, after Microsoft. As the departure of Huang, who has become synonymous with Nvidia, became ever surer, the market grew jittery about who would take the company’s tiller.

 Meanwhile, shares of rival AI chipmakers — including AMD and Broadcom — made gains during the day and continued to rise after hours. Their gains signaled expectations that competition in the AI semiconductor market is about to diversify.

 While Nvidia’s graphics processing units (GPUs) have played an indispensable role, companies supplying other kinds of AI accelerators, along with related semiconductors and technologies, have been getting more business as tech giants like Google, Amazon, Meta and Microsoft step up development of their own chips.

 Nevertheless, Nvidia’s grip on the market is unlikely to weaken right away.

Nvidia’s competitive edge lies not only in the performance of its GPUs but in the ecosystem it has built around CUDA, the software development platform used by AI developers. Moving software and infrastructure built on CUDA onto other chips takes extra time and money, which makes it a barrier to entry that competitors have trouble overcoming.

Korea’s chipmakers expect Huang’s resignation to have a limited impact on their business. The view is that Nvidia’s absolute dominance will allow it to weather the storm, and much of the industry’s output is tied up in long-term supply agreements with customers, as disclosed by firms in their third-quarter earnings. 

“It’s a matter of intense interest, so we’re keeping an eye on the situation, but I think it needs to be seen as separate [from business],” said one industry insider. 

The scandal could weigh on Korean businesses, however, if it prompts the US to further tighten its export controls on chips headed to China. Congress is weighing the AI Overwatch Act, the Chip Security Act, and the MATCH Act, the latter of which would require US allies to impose export controls on China as strict as Washington’s own. 

Samsung Electronics and SK Hynix, which both operate production facilities in China, already need approval from the US government under an annual licensing system before they can bring equipment into their Chinese plants. If the MATCH Act passes as well, installing new equipment, maintaining existing equipment and upgrading manufacturing processes at those plants could become even harder.

On Thursday, Samsung Electronics closed up 0.97% on the KOSPI after swinging between gains and losses, while SK Hynix ended down 1.8%, never recovering from its early losses. SK Hynix’s earnings have soared from supplying high-bandwidth memory chips to Nvidia, which leaves it especially exposed to rising uncertainty.

“Uncertainty over who will succeed Jensen Huang could weigh on the entire Nvidia-centered AI ecosystem, including memory chips and AI servers,” said Seo Sang-young, a managing director at Mirae Asset Securities.

By Seo Hye-mi, staff reporter; Kim Young-bae, senior staff writer