Nvidia Faces Downgrade Amidst CEO Jensen Huang's Personal Scandal and AI Market Uncertainty

Baird has issued a rare downgrade for Nvidia, a move prompted by allegations surrounding CEO Jensen Huang's alleged affair with a Chinese spy, which has cast a shadow over his leadership. Baird analyst Tristan Gerra significantly reduced the chipmaker's price target from $500 to $200. Gerra has also postponed his 2027 forecasts for data centers, citing that supply chain issues are largely resolved and anticipating a potential softening in demand. Furthermore, he suggested that capital expenditure for AI hyperscalers might see growth slow to around 40 percent or less in 2027. Consequently, Baird has downgraded Nvidia stock to a 'neutral' rating, and a separate analysis from Morgan Stanley has removed Nvidia from its list of top picks.

Nvidia was attempting to recover from a challenging period for technology stocks. The chip giant's shares saw a rebound on Wednesday, buoyed by better-than-expected quarterly results from CoreWeave, which positively impacted other chip stocks. Nvidia shares opened 2.48 percent higher on Wednesday at $172.68, following a 5 percent increase in the previous trading session. Despite this, Nvidia's stock is on track for its sixth consecutive losing week and is down approximately 8 percent year-to-date.

Mr. Huang acknowledged an extramarital affair in a letter to employees on Sunday, stating, “To my colleagues at Nvidia, including those I have worked alongside for decades, and to our board, partners and shareholders around the world: you deserve better from me. Leading Nvidia is the privilege of my life. My responsibility is to serve you and be worthy of your trust. I have fallen short of that responsibility. I am fully committed to Nvidia and will work to earn back your confidence.” The Nvidia board of directors has initiated an investigation into the affair, with Mr. Huang expressing full support and commitment to cooperate with the review. The board stated, “While the board has no reason to believe that either national security or Nvidia secrets were compromised, the board's inquiry will examine all available information … The board has confidence in Jensen and his leadership team and will provide further updates as appropriate.”

These significant allegations surface at a time when traders are already closely examining AI tech stocks, following recent earnings reports that have raised concerns about data centers and their underlying financing. Mr. Huang's affair has also drawn attention in Washington, with some legislators calling for investigations. The House foreign affairs committee has requested a closed-door briefing with US President Donald Trump and Mr. Huang regarding his interactions with the alleged spy. US Representatives Brian Mast, John Moolenaar, and House permanent select committee on intelligence chairman Rick Crawford have formally requested Mr. Huang to brief their committees by November 18. The representatives wrote, “The issue of PRC infiltration and access to cutting-edge US technology is core to the investigative work of our three committees this Congress. It is vital that Congress determines the extent to which US national security has been placed at risk,” referring to the People's Republic of China.

Analysts are also evaluating Mr. Huang's future as they assess the trajectory of Nvidia, a critical component of the broader AI ecosystem. Morgan Stanley analyst Joseph Moore noted that Mr. Huang's leadership is “crucial to the company's direction.” On Tuesday, tech analyst Dan Ives estimated a 15 percent probability of Mr. Huang being removed as CEO. Ives further commented, “We believe if Jensen was removed as CEO, Nvidia is worth a lot less (25 percent to 30 percent) as a company/stock and would change the future direction of the company and create a dramatically different competitive environment around AI GPUs globally especially for China.” Nvidia's upcoming third-quarter earnings report, scheduled for November 16, will be a key event for investors.