Nvidia shares drop after co. investigates whether CEO was 'target of a foreign intelligence effort'

Shares of Nvidia are sliding before the market open on Monday as the chip company announced an investigation into reports that CEO Jensen Huang was the “target of a foreign intelligence effort.”

Nvidia's announcement of the investigation on Sunday followed Huang’s acknowledgment that he had been intimate with a business executive who, according to The New York Times, U.S. intelligence determined was gathering information for China.

During a routine briefing Monday, China’s Foreign Ministry dismissed the spying allegations, calling them a smear campaign against Beijing.

Nvidia is a central player in the race to develop artificial intelligence. Its chips power many of the data centers and computing systems used to train and run AI models. Its advanced processors have also been a focus of U.S. export restrictions aimed at limiting China’s access to cutting-edge semiconductor technology.

Dan Ives, partner and senior managing director at Yorkville Ives & Co., said in an analyst note that there's a small chance Huang is removed or steps down from the CEO post.

“Jensen is the core DNA of Nvidia and its AI success and ambitions are heavily tied to him staying on as CEO,” Ives wrote. “Jensen is not replaceable..there is no other person on the management team bench that can step in seamlessly as CEO and that speaks to the key risk now with Nvidia that investors will factor this dynamic to the stock.”

Still, Ives said there is a risk, as Huang could be removed as CEO depending on the board's investigation and that it will remain an overhang on shares near term.

Nvidia's stock dropped 5% in premarket trading. Shares hit an all-time high of $243.37 last month.