Jeff Smith admits Starboard Value sold Nvidia stake too early

In the United States, in June 2013, activist hedge fund Starboard Value, led by Jeff Smith, began accumulating a significant stake in Nvidia, totaling 4.4 million shares valued around $62 million. This investment came after four years of stagnant stock prices and mixed financial performance for Nvidia, which had a robust balance sheet with $3 billion in net cash amid an overall market value of $8 billion. Concerns arose among Nvidia executives about Starboard’s potential influence on company governance, with fears of abrupt restructuring and cuts to vital investments in technologies like CUDA. As negotiations progressed, Starboard ultimately succeeded in prompting Nvidia to undertake stock buybacks, resulting in an impressive 20 percent rally in its stock price shortly thereafter. By March 2014, Starboard exited its position, and while their immediate impact on Nvidia diminished, they continued to play a significant role in the semiconductor market. In particular, they engaged with Mellanox, a struggling semiconductor company, where their criticism was widely acknowledged, highlighting both financial underperformance and the need for strategic changes. Through continued dialogue, the hedge fund pushed for a critical decision to seek additional buyers for Mellanox, culminating in a successful all-cash acquisition of $6.9 billion in March 2019, significantly reshaping market dynamics and setting the stage for Nvidia's expansion in high-performance computing. The acquisition of Mellanox proved extraordinarily lucrative. By May 2024, Nvidia announced the former Mellanox segment produced $3.2 billion in quarterly revenue, a remarkable sevenfold increase since early 2020, when Mellanox was still a public entity. This business segment, originally acquired for $6.9 billion, was now generating more than $12 billion annually and experiencing substantial growth rates, fostering innovations critical for AI, data analytics, and other computational burdens that increasingly necessitate advanced networking technologies. InfiniBand technology, inherited from Mellanox, became instrumental for AI startups to scale their computational capabilities, further validating the strategic foresight of Starboard's investments and Nvidia's adaptations in a rapidly evolving tech landscape.