Jensen Huang affair weighs on Nvidia shares as other chip stocks rally

SINGAPORE: US technology stocks rebounded on Monday (Nov 9), with the rally extending to Asia on Tuesday after last week's sell-off over AI spending, valuations and uncertainty following the US midterm elections.

The Nasdaq Composite closed 2.7 per cent higher, its best day in over four months, while the Philadelphia Semiconductor Index, which contains 30 of the largest semiconductor companies in the US, shot up about 7 per cent after plunging more than 12 per cent last week.

But Nvidia bucked the trend.

The chipmaker was the only stock in the semiconductor index to decline, with its shares closing 4.3 per cent lower after falling nearly 9 per cent earlier in the session. The drop wiped about US$190 billion off its market value.

The decline came as Nvidia co-founder and CEO Jensen Huang admitted to having an affair with a Chinese executive Alice Huang, alleged to be a spy for Beijing.

Nvidia's board on Sunday announced it has launched an independent investigation to probe whether Huang had been "the target of a foreign intelligence effort".

WHY DID NVIDIA MISS THE TECH REBOUND?

Chong Yik Ban, senior research analyst at Phillip Securities Research, described Monday's rebound as a "relief rally" following four consecutive weeks of declines in the Nasdaq.

The recovery was also supported by easing geopolitical tensions and lower oil prices, which helped reduce inflation expectations, said Kelvin Wong, senior market analyst at online trading platform OANDA. 

He pointed to US President Donald Trump's comments that further military strikes on Iran were unnecessary following talks in Qatar.

Nvidia's underperformance, however, reflected company-specific concerns, Wong said.

Chong similarly attributed Nvidia's decline to the controversy surrounding Huang, which emerged over the weekend.

"NVIDIA's heavy dependence on CEO Jensen poses a significant key-person risk that could make investors cautious," he told CNA.

Briefing.com analyst Patrick O'Hare said investors were penalising Nvidia for the uncertainty surrounding Huang, but did not appear to expect wider consequences for the technology sector.

"The stock is being penalised for Jensen Huang's personal transgression, which has invited a great deal of uncertainty into the mix, but the market isn't caught up in the notion that this situation is going to have a systemic domino effect," he told AFP.

The broader rally was also driven by short sellers covering their positions, bargain hunting and momentum trading, according to Adam Sarhan, chief executive of New York-based 50 Park Investments.

"We have seen a very steep and exaggerated selloff in the market," Sarhan told Reuters. 

"Whenever the market gets that stretched to the downside, history has shown us usually it's a good buying opportunity in the short term."

WHAT ARE INVESTORS WORRIED ABOUT?

The controversy has raised questions about national security, corporate governance, regulatory scrutiny and possible consequences for Nvidia's business.

The New York Times reported last month that Alice Huang, the woman linked to Nvidia's CEO, was a Chinese intelligence asset who passed information to Beijing and helped the Chinese government evade US chip export curbs.

China has rejected the allegations as "groundless speculation", while Nvidia's board has said it has no reason to believe company secrets or US national security were compromised.

Wong said investors were likely concerned that the controversy could lead to closer scrutiny of Nvidia's technology transfers, compliance with US export controls and customer relationships in China and Southeast Asia.

Such scrutiny could weigh on Nvidia's revenue prospects in the region, he said.

"From an equity valuation perspective, the greater concern is that the investigation could create a prolonged governance discount, especially if it introduces uncertainty over leadership continuity, US export approvals or regulatory compliance," Wong told CNA.

A governance discount means investors may be willing to pay less for a company's shares because they perceive additional risks, even if its earnings outlook has not materially changed.

The allegations have also attracted attention from US lawmakers, who have questioned whether sensitive American technology or information could have been exposed.

Top Republican lawmakers in the US House of Representatives said in a letter on Nov 4 that the issue raises "significant national security concerns regarding (China's) access to sensitive US technology and information".

Technology analyst Dan Ives of Yorkville Ives told AFP the controversy could trigger congressional inquiries and continue weighing on Nvidia's shares.

"The key questions are whether he was aware of any espionage activities and whether any confidential or strategically sensitive information was compromised," George Chen, a partner at Washington-based consultancy The Asia Group, told AP.

“Those questions require evidence rather than speculation,” he said.

US President Donald Trump said on Monday that Huang had told him he was unaware of the woman's alleged intelligence ties, adding that he believed the Nvidia CEO.

Nvidia and Huang also face a shareholder lawsuit alleging they failed to disclose material information about Huang's relationship with Alice Huang.

The controversy also has a Singapore connection. Alice Huang had reportedly been a top executive at Singapore-based Megaspeed International, which has faced US scrutiny over suspicions that it helped Beijing ‌gain access ⁠to Nvidia's advanced AI chips whose export to China is restricted.

WILL NVIDIA'S BUSINESS BE AFFECTED?

Despite the uncertainty, Chong remains confident in Nvidia's underlying business.

"We are still confident on NVIDIA's fundamentals at this stage," he said, pointing to expectations of higher spending on semiconductor chips by major technology companies in 2027.

Nvidia's next-generation Vera Rubin graphics processing units (GPUs) are expected to support growth into 2027, while its Feynman chips are scheduled for launch in 2028, he added.

Chong said Nvidia's long-term value was underpinned by its CUDA software ecosystem, which developers have used for nearly two decades to build and run AI applications.

"Enterprises and hyperscalers remain locked into NVIDIA hardware out of technical necessity," he said.

HAS CONFIDENCE IN CEO JENSEN HUANG BEEN SHAKEN?

Huang has led Nvidia since co-founding it in 1993 and remains closely associated with its rise as a leading supplier of AI chips.

"Nvidia is not an ordinary company and Jensen is not an ordinary CEO; he is Nvidia," Bernstein analyst Stacy Rasgon told Reuters.

Nvidia's board was also quick to say in its statement on Sunday that it has "confidence" in Huang, and no leadership change has been announced.

While Huang's leadership remains important to Nvidia's growth story, Chong said he believes much of the company's expected growth in 2027 and 2028 is supported by its technology and established customer relationships.

This could limit how much of Nvidia's valuation depends on investor confidence in Huang personally, he said.

Wong said Huang's influence over Nvidia's technology strategy, customer relationships and government engagement created significant key-person risk, potentially increasing the return investors demand for holding the stock.

WHAT OF NVIDIA'S SUCCESSION PLANS?

Nvidia does not have a formal, publicly disclosed succession plan for Huang.

Besides Huang, Nvidia lists four executives on its leadership page. The best known is finance chief Colette Kress, who often represents the company at investor conferences.

The others are executive vice president of worldwide field operations Nick Parker, executive vice president of operations Debora Shoquist and Tim Teter, executive vice president, general counsel and secretary.

However, it will take some doing to replace one of the most charismatic tech leaders who attracts pop star-level crowds wherever he goes.

WHAT SHOULD INVESTORS WATCH NEXT?

Chong said investors should focus on Nvidia's upcoming earnings, its business plans and any further direction from the board concerning the controversy.

Nvidia is due to report quarterly earnings on Nov 17, providing investors with an opportunity to assess whether demand for its AI chips remains strong.

While the company is expected to announce about US$108 billion in revenue, questions around governance are expected to continue lingering.

The US House Select Committee on China last week asked Huang to appear in Washington on Nov 18 for a "closed-door briefing on Nvidia’s security protocols", according to a letter posted on X that cited reports about Alice Huang.

The findings of Nvidia's independent investigation and any subsequent regulatory action will be closely watched.

It remains to be seen whether Nvidia can weather the storm and see its share price recover alongside the wider semiconductor sector, or if the infidelity scandal continues to weigh on the tech giant.