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NVIDIA Corp. (NASDAQ:NVDA) stock fell more than 5% in Monday's premarket trading as the AI chip giant faced fresh scrutiny over CEO Jensen Huang ahead of its quarterly earnings report.
The controversy comes at a difficult time for AI investors. NVIDIA shares are already under pressure as Wall Street questions soaring AI valuations and the sustainability of chip demand. Fresh scrutiny over Huang adds another layer of uncertainty just days before the company's crucial earnings report.
CNBC's Eamon Javers, citing The New York Times, reported Saturday that Alice Huang, former CEO of NVIDIA customer Megaspeed, allegedly worked for China's Ministry of State Security.
She reportedly gathered intelligence on Huang and NVIDIA. However, questions about potential Chinese intelligence operations and Huang's relationship with President Donald Trump remain unresolved.
CNBC's Sri Jegarajah reported Monday that NVIDIA launched an internal investigation into Huang's relationship with her.
Huang acknowledged an affair in a staff memo. NVIDIA's board said it had no reason to believe company secrets or national security information were compromised.
Republican House committee chairs requested a closed-door briefing for Nov. 18, a day after NVIDIA's scheduled earnings release.
Rayliant Global Advisors' Phillip Wool told CNBC that the controversy comes as investors grow more cautious about AI stocks.
However, Wool said he was "not so much concerned" about the controversy causing major problems for NVIDIA.
He expects investor sentiment and AI hardware demand to remain the stock's primary drivers.
Wool identified NVIDIA, SK Hynix Inc. (NASDAQ:SKHY) and Samsung Electronics Co. Ltd. (OTC:SSNLF) as key indicators of the AI hardware market.
He also flagged succession planning and corporate governance risks that investors may have overlooked during NVIDIA's strong growth.
Panmure Liberum strategist Joachim Klement told CNBC that he expects the controversy to remain largely confined to NVIDIA.
However, broader semiconductor stocks could face pressure if Huang's leadership becomes uncertain or NVIDIA reduces support for companies in Asia or the U.S.
Klement also questioned whether NVIDIA's forward earnings multiple makes the stock attractive.
He warned that current valuations rely on aggressive earnings-growth forecasts.
Klement expects AI infrastructure spending to slow more sharply in 2027 and 2028. That could prompt analysts to cut revenue and earnings forecasts, making NVIDIA's valuation less attractive.
NVIDIA shares lost about 8.8% over the previous week, according to Jegarajah, as investors reduced exposure to AI stocks.
JP Ong told CNBC that NVIDIA's role in AI and U.S. national security raises the stakes beyond a typical corporate governance controversy.
He warned that further developments could increase volatility across NVIDIA and the broader AI sector.
Investors will now focus on NVIDIA's upcoming earnings, AI chip demand and management's response to governance and U.S.-China security concerns.
NVDA Price Action: NVIDIA shares fell 5.25% to $176.81 in Monday's premarket trading, according to market data.
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