Shares rebounded Wednesday following a two-day drop linked to scrutiny over an alleged Chinese spy and CEO Jensen Huang's relationship. A real-time read during the morning showed the stock at 173.13 dollars, up 4.24 or 2.51% at 9:52 AM EST.
Investors are evaluating if the episode might harm the company indirectly and affect operations. The company reports quarterly results on Nov. 17.
On Tuesday, Nvidia said it retained Wachtell, Lipton, Rosen & Katz to probe whether any company secrets or U.S. national security were compromised. Huang aimed to signal "business as usual" by returning to the office Monday, according to people familiar with the matter, and he was also in the office Tuesday holding meetings ahead of earnings.
Bank of America laid out three paths in a Tuesday note. In the first, leadership remains in place and any fallout stays limited; a second envisions extended ambiguity compressing the multiple ahead of results; and a third imagines escalation with "adverse findings, leadership disruption or tighter restrictions requiring earnings reassessment," BofA research analyst Vivek Arya wrote.
Zacks' Chief Equity Strategist John Blank pointed to two pressures behind the selloff: potential additional U.S. restrictions and the risk of further negative developments as the story unfolds. "What else has Jensen done?" he said.
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"It's not good for Nvidia. It's not good for Jensen Huang. It's certainly not good for the AI trade," Blank told CNBC's "Squawk Box Europe" on Wednesday.
On Wednesday, Morgan Stanley dropped Nvidia from its top-pick list following a decline of more than 25% since it was added on Oct. 2. The bank's analysts said Huang's leadership is "crucial" to the company's strategic direction.
In plain English: the stock is trading on headlines and fundamentals at the same time. Watch for findings from the legal review and for Nov. 17 earnings, since both could reset expectations. Morgan Stanley's move and BofA's scenarios emphasize a simple point for modeling the business - leadership stability remains a key variable.
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