Shareholder lawsuit targets Nvidia and Huang after $430 billion loss in two sessions
Key Facts
A shareholder has sued Nvidia and its CEO, Jensen Huang, accusing them of misleading investors in their responses to media reports about Huang’s alleged relationship, according to the Associated Press. Reuters estimated that the company lost about $430 billion in market value over two sessions through November 10, reflecting the pressure on the stock as scrutiny of the matter widened. Nvidia closed at $168.89 a share that day, according to EL7 data. The lawsuit frames the matter in terms of governance and compliance risks, alongside its potential implications for the company’s reputation and business prospects. The allegations in the complaint remain claims brought by a shareholder, while the company conducts an independent internal review.
The complaint was filed Monday in a California court and said the company misled investors about Huang’s relationship with Alice Huang and its implications for national security, according to AP. The complaint alleges that Nvidia and Huang did not disclose the relationship and made false statements about the company’s ties to Megaspeed. It described the risks it says arose from this as a “material risk” to Nvidia’s reputation and business prospects. Media reports covered in the coverage described Alice Huang as a suspected Chinese intelligence operative, a characterization made by the reports, not a judicial finding. Reuters said allegations emerged on November 10 that the relationship helped ship chips worth at least $7.5 billion to China, without presenting that as something it had independently verified.
According to Reuters, Nvidia shares have fallen 9.5% since news of the relationship emerged, after being nearly flat since the start of the year, amid investor concerns about returns on heavy spending on artificial intelligence. On November 10, the stock was down more than 6% and trading near $167.11 at the time of the agency’s report, before EL7 data showed it closed at $168.89. In the previous session, the stock fell 4.3% and closed at $178.67, according to AP. Microsoft also surpassed Nvidia on Tuesday to become the second-largest publicly listed company by market value, according to Reuters. These moves show the stock’s losses coinciding with rising scrutiny, while coverage linked concerns about the case with broader worries over returns on investment in artificial intelligence.
The case also relates to restrictions on chip exports to China, as Nvidia sells advanced chips to the Chinese market amid U.S. restrictions, according to AP. The agency said Beijing rejected espionage accusations and called them “unproven.” AP reported that President Donald Trump said the FBI was investigating the case and that he had spoken with Huang; he added that Huang said he did not know the woman might be involved in espionage. Against the backdrop of the disputed business relationship, Nvidia said its compliance team examined Megaspeed and concluded that it was not doing anything illegal. These developments bring together compliance questions and restrictions on chip exports, both of which affect the company’s business in China.
Nvidia’s board said it saw no reason to believe national security or company secrets had been compromised, and that Huang would cooperate with the internal review, according to AP. The board’s independent directors hired outside advisers to investigate, according to Reuters. The board named attorney John Kim, a former acting U.S. attorney for the Southern District of New York, and Wachtell, Lipton, Rosen & Katz to conduct the independent investigation. The board also said it currently has confidence in Huang, but that his succession plan is unclear as he remains at the center of the company’s decision-making, according to AP. That makes the review process and its findings a focus of attention, along with the case’s impact on leadership and governance.
Political pressure extended to Congress, where Senate Democratic Minority Leader Chuck Schumer called on the administration to answer questions about Trump’s defense of Huang and urged lawmakers to quickly pass new restrictions on U.S. chip exports to China, according to Reuters. Republican Senator Kevin Cramer, meanwhile, said he wanted Huang to step down as CEO. These calls come as the independent investigation commissioned by the company’s board has yet to produce findings. After declines in previous sessions, Nvidia shares rose 2.9% on the morning of Wednesday, November 11, as AI stocks rebounded, although the stock had recently fallen because of the investigation involving Huang, according to AP. Attention is expected to focus on the investigation’s findings and developments in the lawsuit and political calls related to chip exports.