Nvidia’s bull case hinges on CEO Huang surviving China spy probe

Résumé détaillé

Nvidia shares had been under pressure prior to this crisis as investors increasingly questioned the durability of the AI trade and the hundreds of billions of dollars in capital expenditures that are funding it.

Nvidia’s investigation of Chief Executive Officer Jensen Huang’s affair with an alleged Chinese spy is raising questions about the company’s future and sending its stock into a tailspin.

In the wake of Huang’s shocking disclosure in a memo to Nvidia employees on Sunday, Wall Street is wondering if the biggest and most important artificial intelligence chipmaker will be able to keep its leader and public face. The stock is down roughly 10% in the two sessions since the news hit, making it the second-worst performer in the S&P 500 Index over that time, and is trading near its lowest since March 30.

“If he goes, the bull case goes with him,” said Jay Goldberg of Seaport Global Securities, the only analyst with a sell rating on the stock. “Trying to conceive of a Nvidia without Jensen seems impossible. If he gets ousted, the floor would fall out from under the stock. I don’t know how likely that is, but it would be shattering.”

Nvidia shares had been under pressure prior to this crisis as investors increasingly questioned the durability of the AI trade and the hundreds of billions of dollars in capital expenditures that are funding it. The stock got hammered after the midterm elections delivered a rebuke to building AI data centres and is on pace for its sixth-straight week in the red, something that hasn’t happened since 2012. Nvidia shares have fallen 29% since hitting a high on October 6, bringing the company’s market value down to around $4 trillion from $5.8 trillion a month ago.

“Even before the midterms, the market was changing how it felt about the cost of the AI buildout, and the election only increased the level of uncertainty,” said Simeon Wallis, chief investment officer of Aprio Wealth Management, which owns Nvidia shares. “Now it has to wait and see what happens with Nvidia’s board, which adds more fog around the story.”

This earnings season showed how concerned investors are about AI spending, especially at companies that are posting negative free cash flow…

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