On November 11, the stock price of Nvidia rose by approximately 3%, recovering some ground after a tumultuous couple of days marred by a scandal involving CEO Jensen Huang. This recent turmoil saw the stock drop consecutively over two days before the uptick, driven by emerging details regarding an alleged extramarital affair linked to Huang.
As of 6:49 AM Eastern Time on Wednesday, Nvidia’s shares climbed by 3.88%, reaching $175.45. The previous day’s closing price was $168.89, reflecting a notable decline of $9.78 or 5.47%.
The resurgence in Nvidia’s stock coincided with an upward trend in U.S. stock index futures. The Nasdaq 100 futures showed a rise of 1.67%, while the S&P 500 futures increased by 0.74%. The Dow Jones futures saw a slight uptick of 0.03%.
While this improvement helped Nvidia recover part of its recent losses, the stock price still remained below levels prior to the scandal gaining traction. The rebound is also indicative of a broader uptick in the artificial intelligence sector. Following the release of quarterly performance results, CoreWeave alleviated market concerns regarding AI infrastructure expenditures, leading to a price increase of over 10% during pre-market trading. Similarly, shares of Micron Technology and Marvell saw rises of nearly 7%.
On Tuesday, the stock experienced a drop of 5.47% as more details surrounding Huang’s alleged relationship with a woman purportedly linked to Chinese espionage were brought to light. This decline followed a 4.3% drop on Monday. Given that Nvidia is included in most U.S. index funds, its falling stock price has repercussions not only for traders but also for ordinary investors.
In response to the situation, Nvidia announced on Tuesday that it had appointed Joon H. Kim, the former deputy federal prosecutor for the Southern District of New York, along with the law firm Wachtell, Lipton, Rosen & Katz, to conduct an independent investigation into the matter concerning Huang.
Reports from insiders indicated that Huang maintained a normal demeanor upon returning to the office on Monday. On Tuesday, he was also present in the office, actively leading meetings, as the company prepares to announce its quarterly earnings on November 17.
Investors are currently assessing whether this extramarital affair scandal could trigger a series of detrimental ripple effects for the company’s operations.
Bank of America currently holds a mixed view of Nvidia, maintaining a “buy” rating but no longer listing it as a “preferred investment recommendation.” In a report released on Tuesday, they outlined three potential scenarios resulting from the incident, each carrying distinct implications for investment outcomes.
In the first scenario, impacts are deemed manageable, and leadership remains stable. The second scenario poses ongoing uncertainty, which might place stress on the company’s valuation ahead of the upcoming financial report.
Vivek Arya, a research analyst at Bank of America, further elaborated on the third scenario wherein the situation escalates, potentially leading to “adverse investigatory findings, instability in leadership, or more stringent restrictions that would compel the market to reassess its earnings expectations.”
Zacks’ Chief Equity Strategist, John Blank, remarked that the sell-off reflects two core concerns within the market: one is the potential for the U.S. government to impose additional restrictions due to the incident; the other suggests that further issues could emerge as the situation unfolds. “What else has Jensen Huang done?” he questioned.
In an interview on CNBC’s “Squawk Box Europe” on Wednesday, Blank stated, “This is unfavorable for Nvidia, detrimental for Huang, and certainly adverse to the investment fervor surrounding the AI sector.”
Morgan Stanley decided on Wednesday to remove Nvidia from its “preferred stocks” list, following a drop of over 25% since the stock was added on October 2. Analysts noted in a report that Huang’s leadership is crucial for the strategic direction of the company.
Moreover, Huang is required to inform Congress by November 11 whether he will brief lawmakers on the situation. Nvidia plans to release its earnings report on November 17, with a proposed closed-door briefing scheduled for the following day, November 18.