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Scandal-stricken Nvidia got left behind as major stock indexes and chipmakers rebounded.
Wall Street is still bullish, but the scandal could complicate Nvidia’s China growth escape hatch.
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“So you built your model, but forgot to account for the CEO getting honeypotted by a Chinese spy in your downside case?”
That was an X post I saw yesterday — one of many that made me chuckle as social media was engulfed with memes, GIFs, and jokes centered on Nvidia CEO Jensen Huang’s affair-with-an-alleged-spy bombshell .
Out of all the things that could’ve derailed the stock of the world’s second-largest company, romance-linked corporate subterfuge was pretty low on the list.
But it happened, and Nvidia shares fell 4% on Monday, tumbling as much as 9% in the first few minutes of trading. Major US indexes, meanwhile, sped past hobbled Nvidia in the other direction, rising more than 2%.
Nvidia’s fellow chipmakers added insult to injury, with the Philadelphia Semiconductor Index (SOX) surging nearly 7%. It marked a much-needed rebound for a sector that was an outsized loser during last week’s post-election sell-off, given its central exposure to the data-center buildout.
The response sent the message that investors see this as an Nvidia-specific destabilization event. The rest of the AI trade — and the demand driving it — remains intact.
But the intense period of scrutiny for Nvidia and Huang is far from over. Here are a couple of storylines to watch going forward:
China expansion hurdles
Here’s where it gets tricky. Nvidia has spent years trying to convince US officials that it should be allowed to sell more chips to China. Now the company could face awkward questions about an alleged intelligence effort involving a business executive tied to an Nvidia cloud partner.
Even if the situation doesn’t impact future numbers, it could make Nvidia’s China lobbying effort more difficult. That matters greatly within an AI trade already worried about the limits of America’s data-center buildout. China was supposed to be a potential release valve for growth, not another policy headache.
Investors will have to contend with “potential governance implications, increased regulatory scrutiny, and export-control compliance of the flow of H200 chips into China,” Citi analyst Atif Malik wrote in a client note on Monday.
Wall Street remains bullish
But Malik — like the vast majority of Wall Street — still has a “buy” rating on Nvidia stock, even though it’s negative year to date and has lagged the Magnificent 7. Not a single analyst downgraded the stock in response to the probe. Instead, a wave of firms including RBC, Bernstein, Citi, Wedbush, and Mizuho published new research reiterating their bullishness.
There was acknowledgment of the key-man risk surrounding Huang , but not enough to put a dent in the company’s long-term AI-spending thesis. Hyperscalers still need compute, data centers are still being built, and Nvidia is still the biggest maker of the chips at the center of it all.
A bottom for the AI trade?
Did I mention that, outside of Nvidia, the rest of the AI trade thoroughly dominated on Monday? After a moderate bounce on Friday, dip-buying, calmed nerves, and — always critically — a drop in oil prices kicked in.
If the trend holds, that could mean last Thursday’s meltdown in tech stocks — the worst since 2020 — marked a market bottom.
It would be a strange way for AI to find its footing, with Nvidia embroiled in tabloid-style headlines as everything else connected to the trade finds new life.
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