Nvidia (NASDAQ:NVDA) is plunging nearly 7% in overnight trading as uncertainty surrounding CEO Jensen Huang’s future weighs on the AI chip giant. The sell-off follows reports that directors may consider removing their longtime leader amid allegations involving two extramarital relationships, including one with Alice Huang, a former executive at Nvidia customer Megaspeed who is suspected of having connections to Chinese intelligence, and another with Kimberly Powell, the company’s vice president of healthcare, who reports directly to him.
The developments have prompted a reversal from one of Wall Street’s best-known semiconductor experts. Bernstein analyst Stacy Rasgon, who ranks among the top 2% of Wall Street analysts, has downgraded NVDA from Outperform (i.e., Buy) to Market-Perform (i.e., Neutral), while halving his price target from $400 to $200. (To watch Rasgon’s track record, click here)
“With the new allegations it feels impossible to us for the board keep him in the role (we have seen other CEOs in our coverage terminated for far less…),” Rasgon noted.
Rasgon believes keeping Huang at the helm could expose Nvidia to further reputational damage, especially if investigators uncover additional misconduct or federal authorities launch their own inquiries. However, removing him would create another challenge, as the the company faces the prospect of finding a successor capable of replacing the executive who has led it for more than three decades.
Still, Rasgon remains confident in the company’s financial prospects, believing demand for advanced processors can sustain growth. The analyst also expects operations to continue during a search for new leadership, despite uncertainty about who could assume responsibility. Falling share prices have made the valuation appealing, yet he sees little reason to commit more capital today.
“We admit to struggling mightily with this call, and can sympathize with the case to buy the dip. But our gut tells us that we probably haven’t yet fully probed the depths of what might be found here; we’ve had enough, and prefer to watch from the sidelines,” Rasgon summed up.
Essentially, Rasgon believes investors may face further unpleasant surprises before the full scope of these events becomes clear. The analyst recognizes the possibility of a recovery but prefers to forgo near-term gains rather than accept risks he cannot yet quantify.
Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment decision.