Leadership change rumors hit NVIDIA Corporation (NVDA.US): Who in the AI chip supply chain could benefit?

NVIDIA Corporation (NVDA.US) leadership turmoil gives potential beneficiaries a boost. The market is betting that AMD (AMD.US), Broadcom Inc. (AVGO.US) and Alphabet (GOOGL.US) could win business from the chip giant, and all three companies' shares rose in after-hours trading. After reports that NVIDIA Corporation's board was preparing to oust CEO Jensen Huang, NVIDIA Corporation fell 9% in after-hours trading, while AMD and Broadcom Inc. both rose more than 3% after hours. Jensen Huang had led NVIDIA Corporation to briefly become the world's most valuable company. Alphabet rose 0.3% after hours. Reports had previously mentioned rumors of Jensen Huang's extramarital affair, and the selloff intensified after news emerged that NVIDIA Corporation's board was preparing to remove him. According to reports, NVIDIA Corporation is working with outside firms to identify potential successors to Jensen Huang. Market bets on competitors benefiting As NVIDIA Corporation faces leadership uncertainty, rival hardware makers are getting a boost, as investors want to hedge NVIDIA Corporation-related risk while continuing to position for the AI trade. The turmoil highlights the potential for greater market volatility ahead, as investors assess the implications for AI development and the extent to which customers are diversifying spending globally. "In the accelerator market where NVIDIA Corporation dominates, competitors like AMD, Alphabet Inc. Class C TPU and Amazon.com, Inc. may have an opportunity to gain share," said analyst Mandeep Singh. "There is no doubt that NVIDIA Corporation will not be as aggressive in setting targets and exceeding them as it has been over the past two or three years." He added that, given recent developments, Jensen Huang's potential successor may be "quite conservative" in leading the company. AMD and Broadcom Inc.: The most direct potential winners If NVIDIA Corporation's leadership problems disrupt its customer relationships, AMD and Broadcom Inc. could benefit most. AMD is NVIDIA Corporation's strongest competitor in AI graphics processing units (GPUs) and is working to erode its market dominance, while Broadcom Inc.'s position in custom AI chips and networking is growing. Although NVIDIA Corporation leadership changes could prompt customers to reconsider reliance on a single supplier, competitors such as AMD and Broadcom Inc. are already doing business in AI accelerators, custom chips and networking. "AMD as a direct competitor, and Alphabet and Broadcom Inc. in TPUs, are the natural near-term beneficiaries," said Anna Wu, investment strategist and founder of Floodlines Research. "Jensen Huang's scandal has raised public questions about NVIDIA Corporation's trade secrets and product advantages." She added that Alphabet's TPUs are custom-built for AI, while GPUs were originally multi-purpose chips designed for gaming. TPUs cannot fully replace GPUs, and moving AI workloads away from NVIDIA Corporation is both slow and expensive. Alphabet announced this week that it plans to launch a broader lineup of AI chips, aiming to capitalize on its rapid rise as NVIDIA Corporation's main challenger to tap into a market worth hundreds of billions of dollars. The company will launch two new TPU variants. Supply chain partners show mixed performance Other beneficiaries include companies that support hyperscale cloud providers' in-house chips. On Thursday, MediaTek, which works with Alphabet Inc. Class C to develop custom chips, rose as much as 3.3% in Taipei trading. Design service companies Alchip Technologies and Global Unichip Corp. both rose more than 8% in Taipei trading, on expectations that growing budgets will flow into custom hardware. NVIDIA Corporation's manufacturing partners appear largely unaffected by the turmoil, because they also supply NVIDIA Corporation's competitors. But if NVIDIA Corporation's uncertainty leads to a reshuffling of supplier relationships, Samsung Electronics could benefit more. Samsung outperformed memory chip rival SK Hynix by more than one percentage point, while Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR (TSM.US) shares were roughly flat. Samsung has built increasingly close ties with AMD, while SK Hynix remains NVIDIA Corporation's main supplier of high-bandwidth memory. During AMD CEO Lisa Su's visit to Seoul in March this year, Samsung agreed to cooperate with the U.S. chipmaker on next-generation AI memory and computing technology. AMD is NVIDIA Corporation's biggest challenger in AI chips. "Potential leadership changes at NVIDIA Corporation could create a strategic opportunity for Samsung," said Jung In Yun, CEO of Fibonacci Asset Management Global. "If Jensen Huang leaves, new management may reassess supplier relationships and place more emphasis on supply chain diversification, which gives Samsung a chance to deepen cooperation with NVIDIA Corporation." Beyond the memory giants, several Korean startups, including AI chipmaker FuriosaAI and Samsung-backed MangoBoost, are also seeking to use alternative technology to chip away at NVIDIA Corporation's dominance. Domestic alternative camp in focus The controversy could also benefit Chinese companies advancing NVIDIA Corporation alternatives in their home market. At the same time, stricter U.S. export rules have increased scrutiny of chip sales to China. If such scrutiny tightens further, it would bring some benefit to domestic chipmakers such as Cambricon, Hygon Information Technology and Semiconductor Manufacturing International Corporation. Cambricon rose as much as 13%, while Hygon and Semiconductor Manufacturing International Corporation both rose more than 5%. Wu said the correction in Chinese tech stocks began much earlier than in the U.S., and if a U.S. market downturn intensifies, investors may view lower-valued Chinese tech stocks as potential hedging tools. "But structurally, unless Chinese tech companies find solutions for advanced chips, I think it will be difficult for them to take market share from NVIDIA Corporation," she said.