Nvidia shares rose about 5.3% in premarket trading on Wednesday, according to CNBC, after falling for two days. The stock had closed down 5.47% on Tuesday and fell 4.3% on Monday.
The declines followed reports about CEO Jensen Huang's alleged affair with a Chinese spy, which CNBC says has rocked the company. CNBC reports that more details emerged about the impact of the matter on the company.
On Tuesday, Nvidia said it had hired the law firm Wachtell, Lipton, Rosen & Katz to investigate whether company secrets or national security were compromised. According to people familiar with the matter, Huang tried to project "business as usual" when he returned to the office on Monday. He was also in the office on Tuesday for meetings ahead of the company's quarterly earnings report on Nov. 17.
Bank of America analyst Vivek Arya outlined three scenarios in a Tuesday note. In the first, the impact is contained and leadership continues. In the second, prolonged uncertainty pressures valuation before earnings. In the third, adverse findings, leadership disruption or tighter restrictions could require a reassessment of earnings.
Zacks Chief Equity Strategist John Blank said the selloff reflected two concerns: that the U.S. might impose further restrictions, and that more problems could surface as the story develops. Blank said the matter is "not good for Nvidia," "not good for Jensen Huang" and "certainly not good for the AI trade."
Morgan Stanley removed Nvidia as a top pick on Wednesday. CNBC reports that the shares had dropped more than 25% since Oct. 2, when the stock was named to that list. Morgan Stanley analysts said in a Wednesday note that Huang's leadership is "crucial" to the company's strategic direction.