Probe into CEO affair rattles Nvidia sentiment as downgrades surface

What happened

Investor sentiment toward Nvidia has cooled, with the inquiry into CEO Jensen Huang's relationship tied to an alleged Chinese spy becoming an overhang. Days after Huang disclosed the affair in a memo to employees, analysts moved to rein in their calls.

The mood shift comes atop a choppy backdrop. Even before the scandal, investors were debating how much companies will spend on AI, and the U.S. midterm elections added another wrinkle with wins by candidates in key states like Texas who oppose data centers.

How Wall Street reacted

Baird downgraded Nvidia to neutral and cut its price target to $200 from $500. Analyst Tristan Gerra wrote he is taking a more cautious stance "until uncertainties regarding U.S. government action likely resulting from the upcoming congressional hearing are lifted, U.S. government investigations reach their conclusions, revenue impact from risk channel near-term adjustments along with potential charges is quantified, and uncertainties around CEO tenure clear."

Morgan Stanley pulled the stock from its Top Pick list but kept a constructive view. "While Morgan Stanley maintains a positive view toward the stock, near term uncertainty will remain, as CEO Jensen Huang's leadership is crucial to the company's strategic direction," wrote analyst Joseph Moore.

Smart investors look for reliable ways to gain an edge in uncertainty. We're hosting our first ever investor livestream on 11/17 to show you how to use ChatGPT and Claude to invest like a pro, hosted by Briefs Finance CEO Jaspreet Singh. Save your seat.

Market context and sentiment

Nvidia's slide has been heavy. The stock has fallen nearly 30% since an October peak and ended Tuesday at its lowest close since March. It was up 3.9% in Wednesday's premarket, but still tracking for a sixth straight down week - the longest since October 2012.

Even with Baird's downgrade, the analyst crowd remains broadly supportive. Bloomberg counts 77 buy ratings, or roughly 94% of coverage, with four holds and one sell equivalent. The average price target suggests almost 90% upside from Tuesday's close.

What it means for your portfolio

Near term, the focus is on leadership risk and any fallout from government actions, both flagged by Baird as open questions. The next catalyst arrives Tuesday, when Nvidia reports third quarter results, which will test whether the fundamental story can offset the latest uncertainty.

Learning how new tools can improve decision making helps investors stay grounded. On 11/17, our CEO Jaspreet Singh goes live for our first ever investor livestream on how to use ChatGPT and Claude to invest like a pro. Register to join him.