Nvidia fell 13% at the open. Then buyers came back

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TECH BRIEF

Good morning from Front Research. Nvidia's founder is gone, and Washington and the rest of the AI supply chain moved fast to fill the space:

• Jensen Huang resigned as Nvidia's CEO on Thursday; CFO Colette Kress is interim CEO and the stock closed down 4.3% after falling more than 13% at the open

• The Commerce Department is finalizing a rule to stop Chinese firms from renting Nvidia chips in overseas data centers, as Chinese buyers rush to lock in capacity

• Cisco raised its full-year outlook to as much as $75.8 billion and says hyperscaler AI revenue will more than double to $9 billion; Applied Materials posted 53% revenue growth

Let's get into it.

Jensen Huang Resigns; Colette Kress Takes Over Nvidia

• Huang resigned as president, CEO and director effective immediately on Thursday, ending a 33-year run at the company he co-founded in 1993

• CFO Colette Kress is interim CEO and stays CFO; former Synopsys chief Harvey C. Jones becomes Nvidia's first board chair

• The stock fell more than 13% at the open, then closed down 4.34% at $166.19; AMD rose 5.86% and Broadcom 5.54%

• Earnings remain on schedule for Tuesday, November 17

• Why it matters: the world's most important AI chip supplier enters its most important earnings report of the year with an interim CEO and no named successor

Nvidia's board did what it had been preparing to do since Wednesday night. The company's announcement says the board will consider internal and external candidates for a permanent CEO, with no timeline, and that Kress, who joined in 2013 after nearly 25 years in finance roles at Cisco and Microsoft, will run the company in the meantime. Jones said the board "has full confidence in Colette and the leadership team" and expects the product roadmap and customer commitments to continue without interruption. In a message to staff, Huang wrote that he had been unfaithful to his wife: "My actions hurt her and our children. There is no excuse for what I did," according to ABC News.

The market's first reaction was the sharpest. Shares fell more than 13% at the open before buyers stepped in, and the close at $166.19 left Nvidia's market value below $4 trillion and the stock down more than 30% over the past month, per Yahoo Finance. Oppenheimer downgraded the stock and removed its price target, citing "massive shoes to fill and no obvious successor." Bernstein moved to Market Perform with a $200 target, and Dan Ives cut his target to $225 from $300. The broader market slipped: the S&P 500 fell 0.36% to 7,592 and the Nasdaq 0.39% to 25,366, while rivals rallied, according to The Motley Fool.

The scandal that forced the exit is not over. Huang's relationship with Alice Huang, the Megaspeed executive U.S. officials suspect of working for Chinese intelligence, remains under congressional scrutiny, and President Trump has said the FBI is looking into it. The New York Times also reported a second affair with Kimberly Powell, Nvidia's vice president of healthcare. China has called the spy allegations groundless. Nvidia's release gives no new financial guidance and confirms results on November 17 at about 1:20 p.m. Pacific.

Why it matters: Huang built CUDA, set the annual product cadence and personally managed relationships with the hyperscalers and with Washington. Kress is a credible steward of the numbers, but the board is now running a search while the Rubin ramp, China policy and a valuation near $4 trillion all hang on execution. The intraday recovery suggests investors trust the demand pipeline more than they fear the leadership gap; Tuesday's guidance call is the first test of that view. The 5% gains in AMD and Broadcom show where money goes if customers start hedging their supplier bets.

Washington Moves to Close the Overseas Chip Loophole

• The Commerce Department is finalizing a rule that would block Chinese AI companies from using advanced chips remotely through data centers in other countries, The Information reported

• Cloud providers in seven more countries, including Singapore, Malaysia and Thailand, would need a U.S. license before receiving Blackwell or newer Nvidia chips

• Chinese AI firms are rushing to reserve Nvidia capacity overseas before the rule lands, according to Reuters

• Treasury Secretary Scott Bessent reportedly confronted Commerce Secretary Howard Lutnick over Commerce's refusal to blacklist Megaspeed

• Why it matters: the policy that kept Chinese demand flowing to Nvidia through third countries is now under attack from inside the administration

The rule would extend existing Bureau of Industry and Security controls to seven more countries and could be announced this month, according to Investing.com, citing The Information. Tencent, Alibaba and ByteDance have signed offshore data center deals that give them access to Nvidia's top chips, and those deals face growing scrutiny. Gizmodo reports that the list also covers Brazil, Indonesia, Norway and South Africa, that companies would have to report who receives the chips and how they are used, and that U.S.-operated data centers would be exempt if they block remote access for customers in restricted countries. Nvidia has lobbied against the rule, arguing it would push China to build its own capacity. One major Chinese cloud provider has already discussed reserving Nvidia-powered compute abroad, according to Reuters.

The fight inside the administration is now public. Bessent challenged Lutnick in a Situation Room meeting over Commerce's reluctance to put Megaspeed, which has bought more than $4 billion of chips by some analyst estimates, on the entity list, according to CNN via Yahoo News. Commerce has not added any company to that list in more than a year and denies the confrontation took place. Megaspeed says it is a "compliant and legal company." Chris McGuire of the Council on Foreign Relations told CBS News that Commerce knew for up to a year that Megaspeed was run by a woman believed to be a Chinese spy, and Sen. Elizabeth Warren has asked Lutnick and his deputy Jeffrey Kessler to explain why export-control loopholes remain open.

Why it matters: for Nvidia the policy risk now arrives without its most effective lobbyist. A remote-access rule would cut off a channel through which Chinese labs have bought frontier compute in Southeast Asia, and it would add licensing friction for neoclouds and data center operators across seven markets. Watch for Singapore and Malaysia data center names, and for any change in how Nvidia describes regional revenue on Tuesday.

Cisco and Applied Materials Show AI Spending Still Rising

• Cisco's fiscal first-quarter revenue rose 24% to a record $18.52 billion, ahead of the $18.13 billion expected; adjusted EPS of $1.40 beat $1.33

• It raised its fiscal 2027 revenue outlook to $74.8 to $75.8 billion from $72.2 to $73.4 billion and expects hyperscaler AI infrastructure revenue of $9 billion, more than double last year

• Applied Materials' fourth-quarter revenue rose 53% to $10.41 billion, and it guided the next quarter to $11.10 billion

• Why it matters: two of the most important suppliers below the GPU layer say AI orders are accelerating, on the day Nvidia lost its CEO

Cisco's networking business did the heavy lifting. Networking revenue rose 43% to $11.13 billion and adjusted EPS grew 40%, the strongest revenue and earnings growth in more than 15 years, according to Yahoo Finance. The full-year adjusted EPS outlook rose to $5.47 to $5.53 from $5.05 to $5.11. Second-quarter guidance of $18.0 to $18.2 billion in revenue and $1.34 to $1.36 in adjusted EPS came in above the $1.23 consensus, and Cisco returned $3.7 billion to shareholders in the quarter, per investingLive. The shares rose about 1% in regular trading and another 1% after hours.

Applied Materials, which reported the same afternoon, closed out a record fiscal year. Fourth-quarter non-GAAP EPS nearly doubled to $4.16 and full-year revenue reached $34.45 billion, up 21%, according to the company's release. Semiconductor Systems revenue rose to $8.0 billion from $4.9 billion, free cash flow hit a record $2.6 billion, and CEO Gary Dickerson said that business is on track to grow more than 40% in calendar 2026. The results beat estimates of $10.30 billion in revenue and about $4.05 in EPS, but the shares, which had fallen about 3.6% during the session, were initially down 1% after the report, according to 24/7 Wall St.

Why it matters: the AI trade has been driven by fears about funding and leadership, not demand, and Thursday's reports point the same way. Cisco is becoming a direct hyperscaler AI supplier rather than a slow-growing enterprise vendor, which supports a higher multiple if the $9 billion target holds. Applied Materials' guidance implies chipmakers are still adding capacity into 2027. The muted stock reactions show how much good news is already priced into the AI supply chain.