Nvidia’s share price drop: a critical moment for the board

Nvidia’s share price tumbled 9.5% this week, in what Reuters Business called the “deepest ever single-day decline in market value for a US company”. 

It’s not unexpected, given the bumpy road tech companies have been on throughout 2024. Nvidia is not the only firm that has suffered a significant drop in market price. 

However, from a corporate governance perspective, such moments are critical for the board to handle properly so a difficult situation doesn’t worsen.

Nividia is a tech company headquartered in California and a dominant entity in the artificial intelligence space. 

Like other big AI players, such as Microsoft and Alphabet, Nvidia benefitted from a wave of optimism and speculation as investors viewed AI’s widespread adoption as part of a lucrative tech revolution.

Now, that optimism is waning on the back of quarterly reports, jobs reports, and government payroll reports, mostly coming from the United States. 

This week, this emerging data caused a 9.5% decrease in Nvidia’s market capitalisation—equivalent to $279 billion—although its value is still up 118% this year to date.

Prudent directors and other executives will have certainly entertained the possibility of this happening. It’s not the first instance of its kind, nor will it be the last. 

AI’s capabilities have commanded global attention for some time, and it was only natural that a surge in investor attention would follow, boosting corporate outlooks and fuelling optimism. 

But as with any investment bubble, eventually, more data will emerge that will cause investors to re-assess how much they stand to gain, how much they want to invest, and how valuable the new technology really is. It’s a giant realignment process, and it can easily mean a few slumps in market value. 

We saw one in August 2024, and we’re seeing one again in September.

Of course, Nvidia is just one example of a company that has fallen victim to the wrong side of investor speculation. This is a widespread issue within the mid-2020s tech and AI bubble, creating a series of unique challenges for boards and other corporate leaders. 

Their first and most crucial task is to realise the importance of big drops in market value and how this corporate crossroads will impact strategy. 

Boards always need to ask the right questions, and at this critical juncture, those questions should include:

• What caused the share price drop of this magnitude?
• Why now?
• Can we expect more in the near future?
• How will we calm the negativity that the media attention is bringing?
• Is the current strategy enough to keep the company stable?
• If not, what changes will we make?

It goes without saying that boards should always aim to be proactive, but in situations like this, that advice is especially important. As far as possible, directors should not wait to see what negative impacts the market will have on them; they should instead forecast as best they can and plan for each eventuality. 

It’s also vital to maintain transparency during this period. The media attention from such huge market drops will leave prominent stakeholders worried about the company’s next steps. The worst thing you can do at that moment is fail to keep them informed. 

Beyond that, the board’s options will centre around potential measures to cut costs and reduce financial risk as the market tries to right itself. This is a challenge in itself: It needs to be backed by sound metrics, it needs to make short—and long-term sense, and it needs to utmost sensitivity if it means cutting jobs or funding. 

If leaders can follow these steps, they should be able to avoid the worst pitfalls of market slumps, including further losses, reputational damage, difficulties raising capital, lower morale, and increased borrowing costs.

Nvidia’s share price decline may have been the the biggest drop for a US company in history, but it hasn’t materialised from nothing. It’s a case of a big company, heavily exposed to speculation around AI, falling victim to the far side of a speculation bubble. 

Good corporate leaders will understand that this is possible during periods of strong investor interest and that sitting still in such moments is not an option if they want their company to stay healthy.