NVIDIA co-founder Jensen Huang has resigned from his positions as President and CEO of the company, which was announced on Thursday. Investors reacted negatively to this news. As of 2:30 p.m., the stock price of this chip giant has fallen by more than 5%, and it is currently 31% lower than its peak on October 6th.
It is not difficult to understand why Jensen Huang’s departure has caused concern among investors. Previously, there were reports that he was in a romantic relationship with a woman who is considered by the U.S. intelligence community to be a Chinese spy. The company, which Jensen Huang co-founded 33 years ago, has grown under his leadership into a business with a market value of about $4 trillion, and its chips have fueled the artificial intelligence boom.
“The premise here is that no one can replace the founder of a generation,” said Michael Monahan, a portfolio manager at Founders 100 ETF who specializes in founder-led companies. “They are unique; what they bring in terms of vision, execution, and resilience is irreplaceable.”
Monahan said that some investors would exit their NVIDIA positions based on this premise – as the fund’s prospectus requires it to do – but other investors would see the decline in NVIDIA’s stock price as an opportunity to buy high-quality stocks at what they consider a “discounted price.”
He said that, looking solely at the numbers, buying a stock with such strong expected growth at the currently depressed price of NVIDIA is an opportunity that comes only once every ten years, and perhaps one may only encounter it once in a lifetime as an investor.
In investment terminology, the latter type of investor is referred to as "buying on dips," which means purchasing assets after their value has fallen in hopes of a rebound. Investment experts suggest that whether this strategy is suitable for you, whether it's for NVIDIA or other stocks, requires careful evaluation—not only considering the stock in question but also your overall investment strategy.
How to view buying on dips
Tom Heinlin, a national investment strategist at Bank of America Asset Management, stated that when an investment you hold or are interested in declines in value, the first step is to examine the reasons you initially bought or held it.
He said that one should ask oneself whether the reasons for the decline have changed one's investment narrative. “Has it changed the reason I bought this stock, or the reason why I invest in the market at all?”
Investors say that if you hold a diversified investment portfolio and the overall U.S. stock market declines, then it is relatively easy to make decisions to buy at lower prices. Since the stock market has generally shown an upward trend over history, each pullback provides investors with the opportunity to increase their holdings in assets that are expected to appreciate at a discounted price.
"If what you hold is a stable, long-term investment, buying on dips is always attractive because you will eventually reach new highs," Jeff Buchbinder, the chief stock strategist at LPL Financial, told Make It in August. "In the history of the S&P 500 index, every pullback has been attractive because you will ultimately reach new highs."
However, individual stocks do not have such a historical record, which means that a significant decline should prompt you to re-examine the logic behind any particular investment, said Heinlin. There are two aspects to this analysis. On one hand, you should reconsider the position of this stock in your portfolio. If it accounts for a large enough proportion that even a small pullback keeps you awake at night, then it might be worth reducing your holdings to better match your risk tolerance, he said.
Whether you already hold this stock or are considering buying it, a decline in the stock price is a good time to assess the investment prospects. For example, if you plan to hold a stock in the long term, you must weigh whether short-term bad news will have a lasting impact on the company's profitability.
"Has Jensen Huang's resignation changed NVIDIA's prospects? There is no clear answer to that," he said.
Monahan stated that, based on historical data, there is indeed reason to worry. The information page of his fund cites data from consulting firm Bain, which shows that from 1990 to 2014, companies led by their founders outperformed their peers significantly. He said that even companies that successfully replaced their founders, such as Apple and Microsoft, did not experience such rapid growth as they did under their original leadership teams.
Investors must weigh the risk that without Jensen Huang at the helm, NVIDIA may fall behind; at the same time, they should also consider the company's still impressive growth prospects—NVIDIA will announce its third-quarter results for the fiscal year 2025 on November 17—as well as their long-term belief in the company as a top supplier of artificial intelligence microchips.
"One thing we are certain of is that the demand for artificial intelligence has not changed," said Heinlin.
