The Fall of Jensen Huang

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0:17From the opinion pages of The Wall Street Journal, this is Potomac Watch. Jensen Huang, the founder and CEO of NVIDIA, resigns after stories of his affairs with an employee and an alleged Chinese spy. This is certainly a tragedy for Jensen Huang, a great American entrepreneur, but will it also be a tragedy for the U.S. economy and its competition with China in artificial intelligence? The fall of Jensen Huang and its political and economic consequences is our subject for today on Potomac Watch. Welcome, I'm Paul Zhigo, editor of The Opinion Pages, The Wall Street Journal. I'm here with two of my colleagues who follow these events, Alicia Finley and Kate O'Dell.

1:04Welcome to you both. So the blast radius of this story is very wide. We want to go through various of the implications. But let's start with the fate of Jensen-Hwan. Built this fabulous company, Alicia, and became a towering global celebrity as a result of it. able to visit the White House, friendly with President Trump, more than friendly with President Trump, friendly with President Xi Jinping, and entertained in the business and political halls of the world. Did the NVIDIA board have any choice other than to kind of ease him out? He resigned formally, but let's face it, he was going to go. Right.

1:47I think after the second reports or the reports came in that he had also had an affair with a subordinate who was an executive at the company, which clearly breached the company's code of conduct. They had no choice. And it also raises questions about what other things was the company not aware of because he was also not candid about his relationship with the suspected Chinese spy, Alice Wong, saying that there was nothing unusual about his relationship and interactions with him. And that is also what the spokesperson repeated the press as of last month. Just a month ago was really dismissing the relationship with Alice Wong as no big deal, kind of normal business relationship.

2:31Kate, do you agree that the company just has not handled this very well? Well, I think the decision to push him out is the correct one. I think if they hadn't done so, the number of risks that they were facing were significant. The disclosure of a second affair wasn't really just a second lapse in personal judgment. It was perhaps an indication to the board that they don't know how much damage there might be to come. And that includes a risk of lawsuits. If, for instance, some of these statements that Alicia was just mentioning that there was nothing to see here, those could invite a legal risk.

3:03You have a major regulatory risk because the paramour, the executive of Megaspeed. Alice Wan. Yes. has been directly involved in a Southeastern Asian company that has been looked at for whether it's diverting chips to China, which the company denies. But there's that major regulatory risk element of this story. And then there's also was just a continuing PR spectacle risk from keeping him on. Jensen Wang, three chairmen, three Republican chairmen in Congress have asked him to come give them a briefing about what happened. They're working to get with him. But Democrats will also be easier to use subpoena power if they don't get the answers they want.

3:44And so the alternatives here of keeping him on just seemed like they became untenable after the disclosure of the second affair. The pushback that you guys describe about the questions over the relationship with Alice Huang, that's the pushback from NVIDIA to queries about this. It was consistent with our experience with the company over the last year or so where we took a position at the editorial page against the export of the highest value chips, computer chips for AI to China. And that did not go down well with NVIDIA. And they came in and pushed back in obstreperous terms, I would say, you know, made it think like we were somehow racist because we're anti-Chinese people when, of course, it's the Chinese Communist Party that we're worried about.

4:36But it is consistent with how they've approached things. Right. And the question is if they've basically gotten used to getting their way in Washington. There were reports in Bloomberg that the general counsel had called up the Commerce Department officials when they started investigating this mega speed company that NVIDIA had. executive was involved with Jensen Huang, and that was also buying chips from NVIDIA that the general counsel called up the Commerce Department officials and inquired about this. And after that, there were some directions to the Commerce Department staff to route all information requests, first through high-level Trump administration officials.

5:20The general counsel also inquired about Ms. Huang's detention in Singapore last year, and whether the Trump administration was involved in that, which also, in my mind, raises questions about whether they were aware that everything wasn't on the up and up between Mr. Huang and his paramour. So there are a lot of questions that are kind of circling. And I think to Kate's point, I think even though he has now stepped down, I think Congress is going to continue to investigate this because it does have broader national security implications to the extent that Megaspeed was involved in smuggling ships.

5:58Yeah, I think there's no question about that. Let's listen to Speaker Mike Johnson talk about the resignation of Jensen Huang. I was just informed of his resignation on the way to the House floor. It's been a busy morning. I mean, it's a big and shocking development. You know, that's a very important company, not only in the U.S. economy, but for national security purposes. Members of Congress have interest in questioning him. And I mean, if that's the will of the body, that's what will happen. But there still seems to me to be a lot of facts yet to be determined. So I'm reserving personal judgment on this.

6:32But it sounds like for him as an individual, he did the right thing for the company and for the countries. Let's talk a little bit about the political implications, but start with the espionage surrounding this, Kate. Alice Wong has been unheard from since all of this story broke on the weekend. We don't know where she is. The Chinese government has denounced the people saying that she is alleged to be a spy as a slur against China. But we do know that China has spies all over the United States and all over Silicon Valley. And given the importance of NVIDIA's high value chips, the so-called Blackwell chips, for example.

7:10You can imagine that he was probably one of the top 10 targets of Chinese espionage in the United States. Yeah, there's no question. I mean, in Chinese espionage, the attempt to kind of hoover up as much information from all sorts of places has been a feature of that campaign from, you know, targeting Kathy Hochul's staff, targeting Eric Swalwell, but then even, you know, slightly comedic stuff like Chinese national snorkeling up to U.S. military bases and acting lost. In lakes. The scale of Chinese espionage is remarkable and the dedication to spying on us. But this case in particular is really striking because I think Beijing has effectively demonstrated here that they can walk in and compromise a singular figure in the American economy and wipe out hundreds of billions of dollars in an afternoon with that campaign.

8:00I think this is more than just, oh, great power spy on each other. Oh, there's espionage. I think it should be a wake-up call that Beijing is trying to build leverage on the United States. And they are trying to do that through working their way in with CEOs. And they are trying to do that by taking control of the rare earth mineral supply chain and then cutting us off from it when it's advantageous to them. This is part of a larger way that the party operates. And the honey trap attempt to use a woman to entrap a man is just about as old as the human race. You have to wonder about Jensen Huang's not kind of getting this in his head, that that could actually happen.

8:41Because, I mean, one of the things that espionage agencies attempt to do is they attempt to compromise people and therefore make them, essentially you can blackmail them for information or for certain actions. And that's the kind of vulnerability that Jensen Huang opened himself up to. Well, yeah. I mean, I was just going to add about why I think, in addition, he was a target, one, because obviously he runs this company with these chips that are indispensable to the future of technology that China is so serious about winning over the United States. But two, he had a direct line to the president, traveled with the president to China more than once.

9:18But three, he was also a major, and I have no reason to think he doesn't believe this, he was a major advocate of the idea that the United States and China could get along and that we would all share the future and that we should not see them as a large geopolitical threat. So I think that combination made him a very attractive target to the Communist Party. We are going to take a break and when we come back, we'll have more on the fall of Jensen Huang at NVIDIA. Congress has talked about permitting reform for decades. Now it's time to actually do it and secure our affordable energy future. Pass permitting reform now.

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10:47Welcome back. I'm Paul Gigo here on Potomac Watch with Alicia Finley and Kate O'Dell. Nobody has had in the past a warmer view of China than I did. I lived in Hong Kong for six years and I traveled to China widely and many friends. And it isn't the people of China. It's the Communist Party that is the problem. And I think there's a certain naivete there on the part of Jensen Huang. I understand that also served his commercial interests because he wanted customers for his chips. But what about the role here of the Commerce Department? Howard Lutnick, the Secretary of Commerce. And the facts aren't all clear, but there are suggestions that somehow the Commerce Department gave a blind eye or a little help to NVIDIA in some of these export controls, for example, and maybe didn't do enough due diligence when there was a memo circulated by Marco Rubio, the Secretary of State, but the potential espionage ties of Alice Wong.

11:46Right. So there's some reporting that Howard Lutnick has kind of pushed back against others in the administration, Marco Rubio, Scott Bessent, who want the administration to crack down more on these kind of apparent smuggling rings that Megaspeed looks to have been involved in. Megaspeed is what? Megaspeed is a cloud provider that was based in, allegedly based in Singapore, right? But it has ties to China. And Alice Huang is associated with it. founder and serves as an executive there, right? But there was also a company, you know, Supermicro, it's an American company that was kind of an intermediary whose employees have been both indicted by the Justice Department in terms of assisting with smuggling of NVIDIA chips, but also the Taiwanese government.

12:36In August, there was a separate indictment that implicated actually a NVIDIA employee. I think all this raises broader questions about if there's kind of a culture in NVIDIA of if you see something, don't say anything and just kind of look the other way, whether that be at export control violations or Mr. Huang's affairs. So Jensen Huang has taken a personal fall for this. The question is, how widespread will and the damage be. Now, when it comes to NVIDIA, its stock fell 13 % here on Thursday morning, but it bounced back. It's now only down about 5%. But in the last few weeks, it's down a trillion dollars in market value.

13:18It's now under 4 trillion. And Kate, that's probably more money than you've lost in the last couple of weeks. In a way, if it's only down 5 % today, losing Jensen Huang, the market and investors are saying, the company's underlying strength is such that it may be able to succeed, can succeed, in fact, without Jensen Huang at the top. Look, I mean, there's no question Jensen has been central to that company. I think he has something like 60 direct reports, has been reluctant to make a succession plan. It's a big deal. But at the same time, I think you're right that markets are reacting like that.

13:54There is a fundamental business strength there that exists independent of him. I also think the turbulence could be significant here in the short term. And I think that's one reason why Trump was supporting Jensen. And initially, Trump was very sensitive to the market reaction here. But in the long term, I mean, it could make the American AI industry more competitive. You have had a number of companies that are trying to run on NVIDIA's heels. And it's been such a dominant company in the industry. I mean, it could make the industry more competitive in the long haul. The question is just how much fallout is there in the short term.

14:28But I subscribe to the theory, you know, if you would compare it to Steve Jobs at Apple, it's not as though he was so utterly indispensable that they couldn't replace him. And I think the board has clearly come to that conclusion here, too. Tim Cook took his place, took Apple to new heights. And lo and behold, Donald Trump suggested today that the replacement for Jensen Huang should be Tim Cook, who recently stepped down as Apple CEO. That would not be the worst thing to happen. I don't know if he wants that kind of job. But Tim Cook has proven himself to be a very effective executive and very effective, by the way, in managing Donald Trump, I should add.

15:03And the rest of the industry, I mean, AMD competitor on chips has soared in value here in response. So to Kate's point about competition and you follow the semiconductor market, are there other companies that are developing chips that could compete with NVIDIA's? Right. So AMD is right now probably the chief competitor, but you've got Google getting into the space. I mean, it's long made its own proprietary chips for its in-house data centers and such. Now it's starting to sell to other companies. You have Meta, Amazon are doing the same. So I think you are likely to see a lot more competition.

15:40And in fact, I think this is one reason why you've had a lot of these NVIDIA circular deals, so to speak, in which it has basically funded AI companies. And by the way, that includes OpenAI. To buy it and then turn around and buy its products. Exactly, to lock in its chips. And I think don't be surprised if you see some antitrust investigations going forward, both by Congress and potentially the administration. Well, that's the big question. Not just antitrust, but also just wholesale investigations by Democrats. Another good thing that might come out of this, Kate, is somewhat more bulletproof, well, nothing is bulletproof, but somewhat better export controls and an export control regime, which is clearly, one lesson of this is they're very porous.

16:24And maybe Congress can come out here even in the lame duck and pass something that tightens those export controls and gives more enforcement manpower behind it. But there's also a big risk here, it seems to me, and that is that as Democrats in particular take Congress next year, they have been trying, they have developed a narrative that's part of the broad critique of the Trump administration, but also of American business, that it's controlled by oligarchs, it's controlled by billionaires, they get special treatment, you, the common person, doesn't. And so they want to knock these folks down to size.

17:03And if they can fit into the narrative that the billionaires are corrupt, see Jensen Huang, they don't care about national security, it could tarnish the whole industry and U.S. AI competition with China. There's the tech oligarchs theme that Democrats are driving. And one other current that's feeding that is Elon Musk. And even today, there are new reports that Ukraine Starlink is being throttled. So that has become its own kind of question of whether one person has too much control out of indispensable technology. It's that kind of mushrooming effect that is a risk here, I think, domestically.

17:37And look, there is a lot of political angst about artificial intelligence. When you look last week at ballot measures involving data centers, I think 40 or 41 of them went in the way of restricting the data centers. The one that didn't was in North Dakota. God bless out there in North Dakota. Hardy Americans in the hard land. Exactly. So there's this pre-existing skepticism of AI. And then it also gets turbocharged by some of the things that Silicon Valley elites say in public. And to give you an example, I mean, only six weeks ago or so, Jensen Huang was on a podcast talking about AI safetyism.

18:14And I agree with him that we should not just rush to regulate AI out of existence because we can't do that because of the race with China. But he said on there, you know, I don't think it's a big deal if kids can't do long division anymore or do square roots anymore. So I bring all this up. Most Americans are going to hear that and think, I don't buy that. I actually think kids do need to know long division. So I go on that digression just to say that there is this broader than just one political faction skepticism of AI and that the risk of the moment is that the Democrats will find a way to capitalize on that.

18:46I guess Jensen Huang doesn't think kids need to do long division because AI will do it for them. And I wonder what he does think children should actually study. But I was just going to add, though, in the Silver Linings Department, you mentioned getting a deal on export controls. And there's a lot of action on that this week on Capitol Hill. This has been a project of a few lawmakers like Jim Banks and Brian Mastin in the House writing bills to improve U.S. export controls. But suddenly now there's interest from Mike Johnson, from Hakeem Jeffries, and every lawmaker is putting out a press release saying, I favor stronger chip controls to China.

19:21So that really shows the politics have really shifted there. And there are bills already sitting, waiting in the Senate NDAA that would do things like mandate end-use restrictions on these chips, that would sync up our protocols with our allies, that would say Congress would have to say whether we could send to a list of countries like China, Cuba, North Korea, and the like. There are some good bills that are ready to go on this very question. And sorry to go on, but I think it's a significant one because selling chips to China is allowing them to develop their military capability about the United States.

19:55It really can't be siphoned off just to these safer civilian adenine uses. Well, on that point, though, let me push back a bit and just give the I mean, I agree with you, Kate. But the response to that, Alicia, which we'll hear from Navidi and others is, look, if we withhold those chips from China. They'll just use their domestic production and skills to develop their own, and they'll catch up to us that much faster. Also, then they'll take those chips and they'll market them to the rest of the world when what we really need is for China to be dependent on our chips. What's your response to that?

20:30Well, I think they're already trying to do that. The Chinese government is already throwing tens of billions of dollars into developing advanced chips to compete with NVIDIA, right? One of its problems is it's basically its status system in which it's directing where the money and the startups are companies that get the funding. And there has in the past been allocations of surprise, surprise, corruption that has really held China back. It's really, I'd argue, our free enterprise system that has enabled NVIDIA success and also encourage more competition in this space. Now, I am a little skeptical of that argument that if we don't give China the chips, they're just going to, again, they're going to develop them on their own because they're trying to do that anyways.

21:16They tried to do that with every single technology. I think right now the chips, to Kate's point, that Xi Jinping really wants are the advanced Blackwell Rubin chips right now. But to the extent that they develop competitors to those, they're going to rely on those anyways. We are going to take another break. When we come back, will Donald Trump bring up the Navidi episode and the alleged espionage with Xi Jinping, the Chinese president, when they meet next week when we come back? Congress has talked about permitting reform for decades. Now it's time to actually do it and secure our affordable energy future.

21:54Pass permitting reform now. Paid for by the American Petroleum Institute. Don't forget, you can reach the latest episode of Potomac Watch anytime. Just ask your smart speaker, play the Opinion Potomac Watch podcast. That is, play the Opinion Potomac Watch podcast. From the Opinion pages of The Wall Street Journal, this is Potomac Watch. Welcome back. I'm Paul Gigo here on Potomac Watch with Kate Odell and Alicia Finley. For a long time, and even now, there's a shortage of some of these really advanced chips for American purposes, Kate. So that's another reason not to sell them to China. But really, it's the U.S.

22:41compute advantage and not wanting to surrender it. I mean, Trump has gone kind of back and forth on this, and he's allowed models that are a step behind our best chips to be sent to China. And then China, I think, has had its own kind of internal debate about whether to rely on those chips or whether to just try to turbocharge their own industry. But they do want the cutting edge chips because it's essential for them keeping up with us. And so it's really the latest generation chips where the risk is concentrated. And I think we're clearly moving toward a political opinion consensus where we don't want to sell those chips to the Communist Party.

23:15Coming up next week, we have a mooted meeting between the president of the United States and the president of China, Xi Jinping, maybe even a trilateral meeting with Xi, Trump and Vladimir Putin. But let's focus on the Xi meeting one-on-one. The president has said, I gather, that he wouldn't bring this NVIDIA business up with Xi, which strikes me as bizarre in this competition. You know, I mean, look, if you were an espionage operator, right, you were an intelligence agency and you wanted to compromise the American technology industry, what would you do? Well, you'd target some of its most prominent people.

23:55You'd try to steal their secrets, and then you would try to see if you could blackmail them. I mean, this looks to be, and we haven't confirmed that Alice Wong was an agent, but clearly American intelligence services believe that to be true. So you are basically, this was an op. This was an espionage op to take out Jensen Wong, and it worked. Right. I mean, who knows, like, even if Jensen didn't compromise any AI or NVIDIA AI secrets, national secrets or anything else, it still worked in the fact that it created this enormous embarrassment for the company, America's leading AI champion and a huge champion of America's AI dominance and allowing, by the way, to supporting the construction of data centers and pushing back against kind of the doomsdayers at other AI companies.

24:45Now, I think Trump does not want to spoil the mood music going into the negotiations because he just thinks he's an expert dealmaker. And if he's very cordial and charismatic, he can get Xi to do whatever he wants. He doesn't want to raise anything that is uncomfortable with Xi. Xi Jinping, of course, famously promised Barack Obama at their meeting in Palm Springs many years ago that we'll end all of our cyber hacking against American targets. So Barack Obama came back saying, oh boy, I feel good about that. And of course, there were never any cyber attacks again, were there, Kate? Just every day.

25:27They're all over. So, I mean, I don't expect much to come out of this she-meeting with Trump. It'll continue the sort of, Trump wants to have a good relationship with him. You would think you'd want to bring up this kind of espionage behavior rather than say, oh, well, you know, countries will be countries, we do it to each other, so what? Well, I mean, one reason he doesn't want to bring it up is because the story is going to have some implications for the administration, too, including whether they warned Jensen Wang about whether they were aware about her connection to the Chinese government.

25:55So that's one practical reason I think he's trying to bluster through it as no big deal. But I do think the facts of the case, it should be, one, AI arms control with China is not going to work. This is a very clear episode showing that no matter what they commit to on paper, they will aggressively pursue their own AI interest in the background. And two, I think it just says one final larger point. I think the administration really wants a relationship that's stable with China's strategic stability. But they need to take an honest inventory of this episode that the relationship, this is not stable behavior of a foreign power here.

26:30And so I think this is an opportunity. Are we finally going to punish Chinese distillation stealing of AI models? That would be one way to respond to this incident that I think would be appropriate. But these are the kinds of, I think, shifts that the Trump administration should and needs to make in the wake of this episode. All right. We'll see what happens next week. We're going to leave it there today. Thank you to Kate and to Alicia for the spirited conversation. Thank you all for listening. We are here every day on Potomac Watch. Congress has talked about permitting reform for decades. Now it's time to actually do it and secure our affordable energy future.

27:08Pass permitting reform now. Paid for by the American Petroleum Institute.