The pressure is mounting on Nvidia's CEO, but Seaport Research analyst Jay Goldberg thinks it could go too far
Nvidia's board is investigating CEO Jensen Huang over his relationship with an alleged spy.
There are 73 research analysts on Wall Street who cover Nvidia - but only one of them dares to have a sell rating on the stock. Seaport Research analyst Jay Goldberg is that bearish analyst, and he thinks that if the company's China spy scandal ultimately costs Jensen Huang his role as Nvidia's CEO, it "would be a mistake for everyone involved."
With Huang's ties to China under increasing scrutiny, "there is an organized political campaign against" the head of one of the most critical companies in the artificial-intelligence industry, Goldberg wrote in a note to clients.
Goldberg pointed to the timing of allegations coming to light that Huang was the target of a Chinese spy operation involving a former executive of Singapore-based cloud provider Megaspeed. Following a report in the New York Times late last month, Huang has now admitted to having an affair with Alice Huang, whom U.S. intelligence reportedly believes was an intelligence asset for China (and who is not related to Jensen Huang). Nvidia's board has opened an independent investigation into whether Jensen Huang was the target of a foreign intelligence operation.
Over the last two years, Huang made his way into the good graces of the Trump administration, even though some in Washington were keen on disrupting a major part of his company's business. But Goldberg suggests his efforts in Washington started to backfire.
"Over the past year, there has been extensive coverage from Washington over growing rivalry and resentments around his ties to the President," Goldberg wrote, referring to Huang, who has been at President Donald Trump's side for a series of key events, including his meeting with Chinese President Xi Jinping earlier this year.
As the Trump administration looked to continue the Biden administration's strict regulations over shipments of Nvidia's chips to China, Huang increasingly became a fixture in Washington. After Trump banned Nvidia's sales of its export-control-compliant low-power alternative chips to China last spring, he reversed the decision and further said the company could sell its advanced H200 chips to the country if the U.S. got a cut of the profits.
Megaspeed is not the only Nvidia customer that has come under scrutiny. Earlier this year, a co-founder of Super Micro Computer (SMCI) and two other individuals involved with the server maker were charged by federal prosecutors with conspiring to bring Nvidia's advanced chips to China. The Super Micro co-founder, Yih-Shyan "Wally" Liaw, pleaded not guilty, while one of the other individuals pleaded guilty. Nvidia was not accused of wrongdoing in the case.
Don't miss: Nvidia's Megaspeed ties show potential blind spots in the U.S. effort to block China from accessing advanced chips
Goldberg said it's unclear how accurate the reports are that some officials in Washington resent Huang's strong ties to the White House, but if they prove to be true, he thinks "there may be further bad news to come."
Goldberg reiterated that while he doesn't agree "with all [of Huang's] initiatives," he doesn't see "anyone who could readily replace" him at Nvidia.
Still, Goldberg said Huang and Nvidia face the risk of being in a "political climate" that could lay the groundwork for the CEO to step down, which would create "a major problem for the company."
Huang has been able "to make bold moves" for Nvidia, including making massive investments into neoclouds such as CoreWeave (CRWV) that buy the company's graphics processing units and then provide the computing power generated by those GPUs to their own customers.
Additionally, Nvidia's flat management structure means Huang has dozens of direct reports. While that has given the company an advantage by cutting through layers of managers, it "comes at the cost of him being involved in every major decision within the company," Goldberg said.
-Britney Nguyen
