Nvidia shares plunged over 8% in opening trade on Monday after an internal investigation was announced into whether chief executive Jensen Huang had been targeted by a foreign intelligence operation triggered concerns about his future at the AI chipmaker. Nvidia is the world’s second most valuable company.Earlier today, Nvidia shares dropped 5% in premarket trading. Huang is facing a board-level investigation into whether he was the target of a foreign intelligence operation. The inquiry follows a media report linking him to a Chinese businesswoman accused of passing information to Beijing.Last month, The New York Times reported that Huang had been in a relationship with Alice Huang, a former executive at Singapore-based Megaspeed who is not related to him. US authorities investigated her and concluded that she was an asset of Chinese intelligence.
What it means for the stock
According to Bernstein, the controversy is unlikely to dent demand for Nvidia’s products.The allegations could become a “heavy distraction” for the company or, in a worst-case scenario, provide “significant ammunition” to lawmakers from both political parties, brokerage Bernstein said on Monday.However, the firm warned that regulatory risks could increase as the expansion of AI infrastructure becomes a more prominent political issue. The latest developments are also likely to keep Nvidia at the centre of the debate.Bernstein maintains an “outperform” rating on Nvidia, with a price target of $400.Nadia El Bilassy, senior market analyst at Equiti Group told Reuters, “This was just the cherry on top for investors looking to pull out of AI-linked stocks. It’s a very bad headline that’s affecting tech stocks.”The attention on Nvidia could ease later this week “when we have more important things to discuss, like the inflation data,” she added.Nvidia’s technology has featured prominently in several major developments in the tech industry, from video gaming and self-driving vehicles to cloud computing and artificial intelligence.The company made early investments in AI under Huang’s leadership. When ChatGPT was launched in late 2022, Nvidia’s chips were already well placed to benefit from the sharp increase in demand for computing power to support AI.Nvidia has since grown into one of the world’s most valuable businesses and a key supplier to major technology companies. Its valuation surged from $420 billion in late 2022 to $4.5 trillion as of November 6.Separately, US authorities have been investigating Megaspeed, a Singapore-based cloud computing company that buys Nvidia products, over suspicions that it helped Beijing obtain advanced AI chips from Nvidia despite restrictions prohibiting their shipment to China.The New York Times reported last month that Alice Huang, a Chinese citizen, had developed a close relationship with the Nvidia chief and allegedly passed information directly to Beijing.Nvidia said an independent committee of its directors would supervise the investigation, with assistance from external independent legal counsel.The company also said Huang fully supports the review and has pledged to cooperate with the investigation.
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