Nvidia handed downgrade on Jensen Huang and AI uncertainty

Baird recently downgraded Nvidia, the leading chipmaker, attributing the move to CEO Jensen Huang's alleged affair with a Chinese spy. Baird analyst Tristan Gerra reduced the target price from $500 to $200, and delayed forecasts for data centers in 2027, citing potential slowdowns in supply and demand. Moreover, capital expenditures related to AI could also slow to 40% growth or slightly less in 2027.

Baird updated Nvidia's rating to neutral, while Morgan Stanley removed it from its list of top picks. Shares in Nvidia rebounded following CoreWeave's better-than-expected quarterly results, opening at $172.68 on Wednesday, a 2.48% increase from the previous session. However, Nvidia's stock is on track for a sixth consecutive losing week, with a year-to-date decline of about 8%.

Huang publicly admitted to the affair in a letter to employees, expressing remorse for failing to meet their trust. The board of directors launched an investigation into the affair and affirmed Huang's commitment to co-operate, emphasizing that there is no reason to believe national security or Nvidia secrets were compromised. The House Foreign Affairs Committee has requested a closed-door briefing with Huang on his interactions with the alleged spy, while US Representatives have urged him to provide updates by November 18.

Analysts are closely scrutinizing Huang's future, with Dan Ives estimating a 15% chance of him being removed as CEO, which, if true, could significantly drop Nvidia's value and alter its competitive landscape in AI GPUs, particularly for China. Nvidia's upcoming third-quarter results on November 16 will be a crucial test for the company's trajectory.