Nvidia’s stock price looked set to slump when exchanges open on Monday, after the company announced it would open an investigation into its chief executive Jensen Huang’s relationship with an alleged Chinese spy.
Futures on Nvidia, which give investors the chance to bet on the company’s stock before the official start of trading, fell more than 4 percent on Monday morning, according to prices on CME Group.
Futures trading is typically more volatile than regular stock trading and a more precise gauge of investors’ reaction to the investigation will come when markets open officially on Monday. Futures for broad market indexes pointed to a slight increase when trading begins, a contrast to the drop in Nvidia’s shares.
While Nvidia’s board has said that it has no reason to believe national security or the company’s own trade secrets have been compromised, the chipmaker’s sheer size and significance to the A.I trade means that the news will reverberate across Wall Street.
Nvidia and Mr. Huang initially said there was nothing problematic or unusual about his relationship with Alice Huang, who became a U.S. government concern after surveillance revealed that she was feeding information directly to Beijing. Ms. Huang is a top executive at a Singapore-based data center company that had become one of Nvidia’s biggest customers in Southeast Asia.
Investors were already reeling from a sharp sell-off in many of the tech companies that have driven the development of artificial intelligence, like Nvidia. Those fears picked up again last week as the initial relief rally following the midterm election results turned to a sharp sell-off, with investors anticipating that state and local governments controlled by Democrats could lead to a slowdown in A.I infrastructure projects.
Nvidia’s stock fell nearly 9 percent last week and is more than 21 percent below its peak at the start of October, a decline that erased some $1 trillion in market value. The sharp fall put the company in a bear market, defined as a drop of 20 percent or more from a recent high.
“We believe demand for the company’s products seems unlikely to be affected, but it seems plausible to postulate increased risks” for the A.I. industry’s momentum, analysts from Bernstein wrote in a note on Monday, “as A.I. build-outs become an increasingly political issue.” The scandal engulfing Mr. Huang also highlighted what’s known as “key man risk” for Nvidia, the analysts added, given how tightly associated he is with the company he co-founded more than 30 years ago. “Nvidia is not an ordinary company and Jensen is not an ordinary C.E.O.,” they wrote.
Nvidia became the world’s largest public company, by market value, for the first time in 2024, exerting an outsize influence over major indexes like the S&P 500. The rapid run-up in Nvidia’s share price put it at the forefront of an exclusive club of tech giants known as the “Magnificent Seven,” which now dominate the stock market.
It was the first company to hit $4 trillion and then $5 trillion in value, as it rode the A.I. boom to dizzying heights. Analysts expect the company to make a profit of well over $200 billion this year, with its chips in high demand as tech companies rush to build giant A.I. data centers.
But as investors have recently turned more wary of sky-high A.I. valuations and the seemingly circular investments of the industry’s largest players, Nvidia’s stock has stumbled. During last week’s market turmoil, Nvidia fell below Apple as the world’s biggest company.
The company’s shares are now roughly flat for the year, although remain significantly higher over longer time periods. Analysts remain bullish, with more than 90 percent of those who cover the stock rating it a “buy,” according to a compilation by FactSet, with an average price target nearly 80 percent higher than where it closed trading on Friday.
“This is a black eye moment for Jensen and will spark multiple congressional inquiries at a minimum,” Dan Ives, the senior managing director at Yorkville Ives, wrote in a research note on Sunday. The analyst, who is known for being consistently upbeat about tech stocks, warned that the revelations would “create an overhang on the stock.”
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