NJAN

By Britney Nguyen

A Baird analyst no longer recommends buying the chip maker's stock as its problems mount

Nvidia CEO Jensen Huang will be subject to probes by both his company and the U.S. government over his relationship with a woman who allegedly was a Chinese government intelligence asset.

Nvidia CEO Jensen Huang has built his company into the epicenter of an artificial-intelligence universe that now revolves around its advanced chips. He's also been able to lead it through the tumult of a burgeoning competition for technological supremacy between the U.S. and China.

But now Huang's strides may be catching up to him, as the CEO and his company are under fresh scrutiny that has one analyst likening him to the tragic Greek mythological figure Icarus - who fell to his demise after flying too close to the sun.

Following Huang's admission of an extramarital affair with a woman reportedly suspected by the U.S. to be an intelligence asset for the Chinese government, various uncertainties surrounding Nvidia - and Huang's place in it - have led Baird analyst Tristan Gerra to downgrade the company's stock (NVDA) to neutral.

Gerra noted an upcoming in-person briefing with Congress, U.S. government investigations into the matter, revenue risks, potential charges and ambiguity around whether Huang will remain as CEO.

He sees two likely outcomes for Nvidia.

One is that the U.S. could introduce a new ban on exports of the company's H200 chips to China, Gerra said in a note to clients. He estimated that could lead to a $5 billion write-down, or a reduction in the value of those chips on Nvidia's books. The chip maker faced a similar write-down last spring, when the Trump administration banned it from selling its less capable version of the chips to China.

As it stands, Gerra said it's likely there are low-level shipments of the chips going into warehouses in Asia, with some quantities waiting for Chinese customers.

Gerra also thinks more export controls specifically targeting loopholes that allow Nvidia's chips into data centers in Southeast Asia could come about. And Megaspeed - the Singapore-based cloud provider where Alice Huang, the alleged spy with whom Huang had an intimate relationship, was an executive - could face action from the U.S. Justice Department, Gerra noted.

That could lead to "pre-emptive or enforced actions from other data-center operators located in the region with potential China demand exposure," he wrote, adding that China-related demand for Nvidia's graphics processing units has historically "been higher" than Wall Street's estimates.

For now, demand from U.S. cloud providers for Nvidia's chips far exceeds supply, Gerra said, meaning any weakness in Southeast Asia can be absorbed through next year.

However, if China-related demand disappears or Nvidia restricts shipments of its chips to data centers in Southeast Asia, the impact on its revenue could be focused in a certain quarter when major cloud providers are constrained on spending and "not able to pick up the slack within that given quarter."

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Additionally, Gerra said estimates for the data-center buildout in 2027 are delayed, as limited supply for components signals a potential slowdown and demand could be waning as well. In that case, he estimated the annual growth of hyperscaler spending on AI could pull back to 40%, or less.

Nvidia's valuation already counts in some of the concerns around data-center development, Gerra noted. Therefore, he thinks the stock "will at best stay in a trading range until the dust settles."

On that, Gerra lowered his price target on the shares from $500 to $200. They were trading at $175.85 midday Wednesday, up more than 4%, after suffering their worst five-day performance since September 2022 through Tuesday's close.

The stock's extensive recent decline led Morgan Stanley analyst Joseph Moore to remove Nvidia as his top pick in a Wednesday note, pointing to the investment bank's "stop-loss policy." Nvidia shares had fallen more than 25% since Moore added the company to his top picks on Oct. 2, he said.

While the analyst's overweight rating on Nvidia's stock remains, he cited the near-term uncertainty for the company, given that "Huang's leadership is crucial to the company's strategic direction."

-Britney Nguyen

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11-11-26 1213ET