Nvidia shares volatile amid CEO scandal and AI valuation concerns

Nvidia shares fell to $180 on the Hyperliquid exchange, a low not seen since April, following a weekend email in which CEO Jensen Huang admitted to infidelity. The scandal involves a woman identified as Alice Wang, a former manager at MegaSpeed in Singapore, who is suspected of working for Chinese intelligence and smuggling Nvidia chips to China. The Nvidia board launched an independent investigation, which found no evidence of secret leakage, but the market reaction was severe. The stock drop represented a loss of approximately $140 billion in market capitalization, a sum exceeding the amount Anthropic aims to raise in its upcoming IPO. Huang’s personal stake of 3.5% lost about $4 billion in value.

Market confusion was compounded by conflicting reports regarding SoftBank. SoftBank’s stock dropped 20% in a week, contributing to a 60% decline since its June high. Reports emerged that Dutch bank ING was dumping $500 million in data center debt, initially misattributed to SoftBank, though only $25 million of this debt was tied to the New Mexico Stargate facility. Elon Musk posted that SoftBank was defaulting on turbine orders, adding to the uncertainty. S&P 500 futures erased around $300 billion in market cap at the open before reversing within five minutes.

Investors are now debating whether the scandal poses a 'key man risk' to Nvidia’s leadership and U.S. AI policy. Jim Osmond argued that while markets can price bad earnings, pricing a CEO who may be compromised by foreign intelligence is a different challenge. Nvidia, which constitutes 7% of the S&P 500, has seen its valuation drop from $5.8 trillion in October to $4.4 trillion due to post-midterm AI anxiety. The company is expected to report earnings on November 17, with revenue forecasts of $109 billion, a 91% increase. The stock currently trades at a price-to-earnings ratio of under 20.