Nvidia shares dropped 7.03% in early trading on Wall Street on Monday as investors reacted to the controversy involving CEO Jensen Huang. The executive has admitted to being unfaithful to his wife, while the company has also launched an independent investigation into reports that he may have been targeted in a foreign intelligence operation.
At 9:32 am ET, Nvidia shares were trading at $173.51, down $13.12 from their previous Nasdaq closing price of approximately $186.64. The stock had already declined more than 4% in after-hours trading on Monday, falling to around $178. The losses widened to nearly 6% during pre-market trading before the opening bell.
The latest decline has highlighted potential risks for the world's leading AI chipmaker, particularly its reliance on Huang's leadership and the possibility of heightened political and regulatory scrutiny over its business in China.
Wall Street brokerage Bernstein has also weighed in on the controversy. While retaining its Outperform rating on Nvidia, the firm cautioned that the episode could become a major distraction for the company and expose it to additional regulatory risks.
WHY ARE NVIDIA SHARES FALLING?
The controversy follows Huang's admission that he had an intimate relationship with a business executive identified in media reports as Alice Huang, a former executive at Singapore-based data centre company Megaspeed International.
US intelligence agencies reportedly suspect that Alice Huang was collecting information for Beijing. The allegations have triggered questions about whether Nvidia's CEO was targeted as part of a foreign intelligence operation and whether the relationship could have affected the company.
In a message to employees on Sunday, the 63-year-old Taiwan-born executive admitted that he had been unfaithful to his wife and apologised to his family and colleagues.
"I was unfaithful to my wife. My actions hurt her and our children. There is no excuse for what I did. I am deeply sorry," Huang wrote.
He also acknowledged that he had failed to meet his responsibilities towards the company and its employees, stating: "Leading Nvidia is the privilege of my life. My responsibility is to serve you and be worthy of your trust. I have fallen short of that responsibility."
Following the revelations, Nvidia's board announced an independent inquiry into reports that Huang had been the target of a foreign intelligence effort. A committee comprising independent directors will supervise the investigation with assistance from external legal advisers.
The board said it had no reason to believe that US national security or Nvidia's confidential information had been compromised. Huang has agreed to cooperate with the inquiry, while the board reiterated its confidence in him and the company's leadership team.
CHINA CALLS SPYING CLAIMS BASELESS
China has dismissed the allegations that it used a business executive to obtain information about Huang, describing them as baseless attempts to damage the country's reputation, according to a report by The New York Times.
Foreign Ministry spokesperson Guo Jiakun said on Monday that the claims surrounding an alleged Chinese spy amounted to "entirely baseless vilification and smearing".
The denial comes amid renewed attention on Nvidia's operations in China and US restrictions on exports of advanced AI chips to the country.
The controversy also involves Singapore-based Megaspeed International, which has reportedly been one of Nvidia's significant customers in Southeast Asia. The company has faced allegations concerning the transfer of advanced chips to China.
However, there is currently no established evidence that Huang shared confidential information with China or that Nvidia's technology was compromised. The company's board has said its investigation will examine all available evidence.
WHAT BERNSTEIN SAYS ABOUT THE NVIDIA CONTROVERSY
Despite the sharp decline in Nvidia shares, Bernstein has retained its Outperform rating on the stock. However, the brokerage warned that the controversy could divert the company's attention and expose it to greater regulatory scrutiny.
According to Bernstein, some of the espionage-related allegations appear to have "more form than substance" at this stage. Nevertheless, it described the entire episode as a "very bad look" for Nvidia.
The brokerage also questioned claims that Alice Huang might have influenced Jensen Huang to lobby the US government for greater access to the Chinese market. It pointed out that the Nvidia CEO had been advocating increased access to China for years, suggesting that such influence was unnecessary.
Bernstein further noted that Nvidia's sales in China remain limited. The chips currently permitted for export by the US, including the H20 and H200 in restricted quantities, are several generations behind the company's most advanced products.
It added that these chips are not currently being sold in the region primarily because China has resisted their use while prioritising domestically developed alternatives.
However, the brokerage cautioned that if Alice Huang was involved in espionage, information could potentially have been accessed through channels outside Nvidia's corporate devices. It described the matter as a serious concern regardless of the eventual investigation findings.
LEADERSHIP RISK: WHO COULD REPLACE JENSEN HUANG?
Bernstein's major concern is Nvidia's heavy dependence on Huang, who has played a central role in shaping the company's strategy, management and expansion during the AI boom.
The brokerage emphasised that Nvidia is not an ordinary company and Huang is not a conventional CEO. His association with the chipmaker is so strong that he has effectively become the public face and identity of the business.
Bernstein noted that Huang has approximately 60 direct reports and maintains substantial influence over the company's operations and important decisions. It also raised questions about who could take charge if he became unwilling or unable to continue as CEO.
The uncertainty surrounding Huang's future could weigh on Nvidia shares for some time as the investigation moves forward, the brokerage said.
It also warned that the controversy could give China hawks in the US Congress additional grounds to criticise Washington's approach towards Beijing. Democrats who have questioned Huang's close relationship with US President Donald Trump could also use the episode to intensify their criticism.
Bernstein believes the controversy is unlikely to weaken demand for Nvidia's products. However, it sees the possibility of increased regulatory pressure as the expansion of AI infrastructure becomes a more politically sensitive issue.
For investors, the central question is whether the episode remains limited to reputational damage or develops into a broader leadership, corporate governance or regulatory problem. The board's investigation findings and any additional scrutiny of Nvidia's China-related operations will be crucial developments to monitor.
