Nvidia shares rose 5.3% in premarket trading Wednesday after falling for two consecutive days. The stock closed down 5.47% Tuesday and down 4.3% Monday amid reports about CEO Jensen Huang's affair with an alleged Chinese spy.
Nvidia hired law firm Wachtell, Lipton, Rosen & Katz on Tuesday to investigate whether company secrets or national security were compromised. Huang returned to the office Monday and attended meetings Tuesday ahead of the company's quarterly earnings report on November 17.
Bank of America outlined three scenarios for investors. One assumes contained impact with leadership continuity. Another projects prolonged uncertainty that pressures valuation before earnings. The third involves escalated impact with "adverse findings, leadership disruption or tighter restrictions requiring earnings reassessment," analyst Vivek Arya wrote.
Zacks' Chief Equity Strategist John Blank cited two investor concerns: potential U.S. restrictions following the affair and additional problems emerging as the story develops. "It's not good for Nvidia. It's not good for Jensen Huang. It's certainly not good for the AI trade," Blank said.
Morgan Stanley removed Nvidia as a top pick Wednesday after shares dropped more than 25% since the stock was added to that list on October 2. Huang's leadership is important to the company's strategic direction, Morgan Stanley analysts noted.