Nvidia has more than just billions of dollars in value to lose if its stock keeps falling

Analysis by Allison Morrow, CNN

New York (CNN) — Nvidia, the nearly $3 trillion AI chip maker, is well known as a “golden handcuffs” employer. Expect long hours, screaming-match meetings, a CEO who believes he should “torture” his employees into greatness — your standard tech startup-turned-juggernaut nightmare.

In exchange, you get to be rich, possibly very rich, thanks to your equity in the company. It’s a common Silicon Valley compensation model — young companies that are light on cash but brimming with potential can attract talent by promising shares on top of a salary, giving each employee a personal incentive in its success. It’s worked especially well for Nvidia, a 30-year-old tech company whose specialized chips now account for 90% of AI-related chip sales.

Since 2019, Nvidia’s stock has soared 3,000% — minting millionaires among its rank and file.

But as the chip maker’s stock slides, those handcuffs could lose some of their luster.

Here’s the deal: Last week, just before Nvidia released its quarterly earnings, Bloomberg published a deeply reported account of life inside Nvidia, citing 10 current and former employees.

To hear them tell it, it isn’t the kind of depraved tech frat house that you might associate with a company as buzzy and suddenly flush as Nvidia (pronounced en-VID-eeyah).

Still, workers described a standard of overwork that would make even Wall Street bankers wince.

Many of the people Bloomberg quoted said they worked seven days a week, often well past midnight. One said she spent her days attending as many as 10 meetings, which often involved loud squabbles in front of dozens of colleagues. There seems to be no limit on how many direct reports one manager may have. The founder and CEO, Jensen Huang, who has publicly touted the virtue of suffering for one’s work, has 60.

Despite that chaotic corporate structure, Nvidia’s turnover rate, at 5.3% in 2023, stands well below the industry average of nearly 18%, according to the company’s sustainability report.

It’s hard to turn your back on the promise of life-changing wealth. And at Nvidia’s Santa Clara office, where the parking lots are packed with Porsches and Lambos, you couldn’t even if you tried. Per Bloomberg: “Conversations about Nvidia’s daily market gain or loss (but usually gain) can be heard in hushed tones at lunchtime,” and there is a Slack channel devoted to discussions about personal finance advice.

What’s four years of suffering while you wait for your shares to vest and burnish your resume at one of the most valuable companies on the planet? What’s another four if you can retire early?

To each their own, of course. But for Nvidia as a corporation, the calculus for attracting and retaining talent gets more complicated if one of its biggest selling points — its runaway stock price — comes crashing down.

Nvidia has shed 20% of its market value since its June 18 peak, thanks to a confluence of factors: nerves about the strength of the US economy have fueled a broad tech selloff, and investors are getting tired of waiting on AI companies to prove they have honest-to-God products that can actually make money, rather than just gulp down capital like its tap water.

Things got worse for Nvidia on Tuesday, when shares fell 9.5%, wiping $279 billion off its value. That was the biggest loss in Wall Street history. As my colleague David Goldman noted, only 27 companies on Earth are worth as much as Nvidia lost on Tuesday.

Nvidia and its backers see it as a “picks and shovels” play — the kind of company whose fundamental value is strong even without all the AI hype. But its skeptics point to growing competition in the highly technical space of semiconductors.

Nvidia’s success means it has a target on its back — a fact that could help turn its biggest customers, like Google and Amazon, into its biggest rivals. Competition for talent is bound to heat up, creating opportunities for engineers and other sought-after workers. If Nvidia can’t keep them on board with promises of triple- and quadruple-digit returns, it may have an even bigger problem on its hands.

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