Nvidia Investigation Rocks Stock, Even as Broad Market Rallies

NVIDIA

Across the shows: 89 speakers in other episodes, 71 bullish and 44 bearish calls, past 30 days

• Eamon Javers · CNBCBearish

  Multiple investigations will consume Huang's time, making the Nvidia situation a daunting one.

  Javers reports that the president said the FBI is looking into the allegations, and that the US intelligence community has been surveilling Alice Wong, the alleged spy. He argues the investigations will take enormous time and energy from Huang and the executives. Huang will spend a lot of time preparing with lawyers and giving depositions to committees and other bodies. Democrats taking control of Capitol Hill will add their own robust investigations, and the political pressure is building.

  “that presents a very daunting picture, right? I mean, these investigations take enormous time and energy from the executives and principals who are operating them.”at 5:59

• Karen Finerman · Metropolitan Capital AdvisorsUncertain

  Huang's alleged spy ties could do big damage; she hopes he stays but expects it won't clear soon.

  Finerman is still a shareholder and bought calls on the day, but she sees the controversy as serious. Huang is central to Nvidia, like Musk at Tesla, and she hopes he can stay, though the board's options (keeping him as a figurehead CEO, a weak lead director) are limited. She argues the investigation will not be resolved quickly, and that the potential damage is big. If this were a defense company, keeping the CEO would be very hard to justify, so she treats the tech and semiconductor sector as strategic.

  “I really, really do hope he can stay. ... Potential damage here is big.”at 7:38

• Steve Grasso · Grasso Global Inc.Bearish

  Nvidia's discount reflects circular financing risk, and the Huang probe adds to a flat-structure key-person risk.

  Grasso argues Nvidia has traded at a major discount to itself and to semiconductor peers for a long time because of circular financing. Nvidia funds or underwrites customers who then buy its chips, and the deals ultimately come back to Nvidia, creating an inherent conflict. He compares this to a wrapper that made an AAA mortgage-backed security look AAA. He adds that the flat organization depends on Huang, who controlled every key relationship, so the scandal overhang keeps the stock in the doghouse. He also says the stock's drop had been driven by gross margin and circular financing risk, and that a high-60s gross margin print on Nov. 17 could push it much lower.

  “you could make an argument that Nvidia is traded at a major discount, not only to itself, but even to the semiconductor space for a long time because of the risks around a lot of these circular financing deals.”at 9:25

• Tim Seymour · Seymour Asset ManagementUncertain

  Stock already sold off for other reasons; the scandal could still add another leg lower.

  Seymour argues the stock has underperformed for months, with AMD and the memory names doing the work while Nvidia lagged, so much of the weakness was already priced in before the scandal. He would not call the risk fully de-risked, though. If the situation is even more nefarious than it looks, there could be more layers. He suggests that a speculative buyer could look at March lows near $163 and must be disciplined on the exit.

  “I think what I'm saying, though, is that it's already been sold off for other reasons. Already. Is there another leg to this? Of course, there could be another leg...”at 13:34

• Dan Niles · Niles Investment ManagementBullish

  At 12x earnings, Nvidia already discounts much bad news, so he bought shares despite the scandal.

  Niles bought Nvidia during the session. He says it trades at about 12 times earnings, is down this year, and underperformed the SOX last year. At that multiple, he believes a lot is being discounted. He does not pass moral judgment. He thinks Huang probably did not know, and that the company could ask him to leave, which would change his view if the facts change. He is not long-only, so the position is relative to other trades, including semiconductor names he is shorting after the bounce.

  “you know, I looked at Nvidia and where it's trading at 12 times PE. ... at 12 times PE, a lot is being discounted at this point.”at 16:38

• Guy Adami · CNBCBearish

  Nvidia's probe is far from over; more shoes to drop, based on heavy volume and the Megaspeed history.

  Adami points to about 500 million shares traded, roughly five times normal volume, as a sign of heavy selling pressure. He recalls a Commerce Department investigation into Megaspeed that was reportedly dropped about a year ago after urging from an Nvidia executive. Given that history and the flat organization, he believes there are more shoes to drop, and that this is clearly not the last of the story.

  “Think it traded 500,000,000 shares today, so it's five times normal volume. ... I think there are more shoes to drop here.”at 23:13

Alphabet

Across the shows: 65 speakers in other episodes, 60 bullish and 42 bearish calls, past 30 days

• Dan Niles · Niles Investment ManagementBullish

  Google's search ad coverage and ad load should improve from low levels; sentiment is too negative.

  Niles says Google missed in search in the June quarter and missed worse in September, with YouTube added to the problem. He sees a silver lining: query growth hit a five-year high. The weakness is that not all AI queries carry ads, and the ad load per query is low. As Google improves both coverage and ad load, he thinks it will do well, and the stock's negative sentiment makes it interesting.

  “Why I actually like it right here is I go, okay. The good news is query growth was at the highest in five years. But they don't have the ad coverage, meaning not all AI queries do they have ads on.”at 21:21

Microsoft

Across the shows: 41 speakers in other episodes, 49 bullish and 7 bearish calls, past 30 days

• Dan Niles · Niles Investment ManagementBullish

  Microsoft will be a winner in enterprise AI because corporations want the safe choice.

  Niles's core long-term view is that three companies will do well in AI several years out. Microsoft is one of them, because corporations want a safe, trusted choice for enterprise AI, given the risks people associate with the technology. That positioning, rather than near-term results, is what drives his view.

  “my core thoughts are out several years from now, there are gonna be three companies that do well in AI. It's gonna be Microsoft because ... corporations obviously wanna have a safe choice. That's Microsoft Enterprise.”at 21:55

Apple

Across the shows: 52 speakers in other episodes, 59 bullish and 35 bearish calls, past 30 days

• Dan Niles · Niles Investment ManagementBullish

  Apple's roughly 25% smartphone share makes it a consumer AI winner, since users won't care which model.

  Niles argues that in consumer AI, Google wins via Android's roughly 75% smartphone share and Apple holds the other 25%. Consumers will not care which model they use, so distribution through the device is the advantage. This is part of his longer-term view that three companies will win in AI.

  “In consumer, it's Google because Google's on 75% of the smartphones out there, and it's Apple because Apple's got the other 25%. You're not gonna care what models it uses.”at 22:14

Delta Air Lines

Across the shows: 5 speakers in other episodes, 5 bullish and 1 bearish calls, past 30 days

• Steve Grasso · Grasso Global Inc.Bullish

  Delta absorbed about $6B in higher fuel costs with only a $400M charge; oil-sensitive upside remains.

  Grasso argues airlines have been resilient, and Delta more than most. It absorbed roughly $6 billion in higher fuel costs this year with only a $400 million charge, which he calls the best pass-through available. Travelers are flying despite higher fares, so he thinks pricing power can hold. He says Delta has a lot of room on reflexivity, since the oil commodity sold off meaningfully while the XLE did not fall as much. Tim Seymour had flagged Delta in early October, and the stock has moved since then.

  “there's an argument that airlines have been very resilient and Delta more than others. In other words, they did the fuel costs. I think they had about 6,000,000,000 in higher fuel costs this year, leading to only a $400,000,000 charge, which is the best pass through that you have out there.”at 27:59

The Procter & Gamble Company

Across the shows: 3 speakers in other episodes, 2 bullish and 1 bearish calls, past 30 days

• Guy Adami · CNBCBearish

  Consumer staples like Procter & Gamble have been bid to unsustainable, parabolic valuations.

  Adami says money flow has pushed consumer staples to levels he considers unsustainable on valuation. He understands the rotation, but argues these names have had a parabolic move up. Procter & Gamble is the most obvious example, and the whole group has run hard.

  “you've bid up some of these consumer staple names to levels that, in my opinion, are unsustainable just in terms of valuation. ... Procter and Gamble is the one that sticks out like a sore thumb.”at 29:00

Eli Lilly and Company

Across the shows: 12 speakers in other episodes, 11 bullish and 2 bearish calls, past 30 days

• Steve Grasso · Grasso Global Inc.Bullish

  Lilly's 40x forward multiple is less worrying because it leads across multiple subsectors and has real fundamentals.

  Lilly is so far ahead of its peers and is competing in multiple subsectors, so its roughly 40x forward multiple is less of a concern to him than it would be for a company without that lead. He sees massive rotation into healthcare and argues the midterms acted as a clearing event for a rotation that had been building for a long time. Lilly has been one of the beneficiaries of that rotation, on top of its fundamentals.

  “[Lilly is] so far ahead of everyone and they're doing it in multiple subsectors. And so therefore their multiple at 40 times forward is less what I would be concerned about here than I just would be.”at 41:55

Citigroup

Across the shows: 9 speakers in other episodes, 8 bullish and 2 bearish calls, past 30 days

• Karen Finerman · Metropolitan Capital AdvisorsBullish

  Banks have more room to rally, so she likes Citigroup.

  She says the banks have more to rally and that she likes Citigroup for that reason. The stock is also described as 20% off its entry-day lows, which she presents as a pullback to buy into strength. The case is brief and she gives no detailed fundamental evidence.

  “I think the banks have more to rally so I like Citibank”at 46:14

Vertiv Holdings Co

Across the shows: 5 speakers in other episodes, 7 bullish and 1 bearish calls, past 30 days

• Tim Seymour · Seymour Asset ManagementBullish

  Vertiv's orders doubled and revenue rose 61%; the politically driven selloff makes it a buy.

  He cites doubled orders and revenue up 61%, which he takes as evidence of strong demand. He argues the stock sold off because of politics rather than its business, so he is a buyer. The company is described as a data center infrastructure name, so the case rests on that demand. The ticker is inferred from a garbled transcript word, so the identification is uncertain.

  “[Vertiv.] They've doubled orders. Rev is up 61%. Sold off due to politics. I'm a buyer.”at 46:22

US–China AI & chip race

• Eunice Yoon · CNBC

  China's rare earths leverage lets Beijing hit back if US chip controls tighten during the truce.

  Yun says the US and China are in a truce, but China still holds a rare earths card. If chip controls get much stricter, Beijing can use rare earths to exert leverage and hurt the US industry. This matters because China wants Nvidia's superior chips for its AI firms while trying to wean itself off them and grow domestic chips.

  “we are in a truce between The US and China and that the Chinese do still have an ace up their sleeve. So if the chip controls suddenly get much more strict, then the Chinese have their rare earths card.”at 36:26

• Dewardric McNeal · Longview Global

  Congress must act on chip export controls; the industry should expect more laws and oversight.

  Much of the US counterintelligence architecture aimed at the high-tech sector was reprogrammed for immigration or unwound under the Trump administration. The executive branch has not seemed concerned about China's threat to information and process security in AI policy decisions, so Congress has to act. He expects more scrutiny of the chip supply chain in the next Congress and names three stalled bills: the AI Overwatch Act, which brings Congress into setting export controls on specific technology; the MATCH Act, which brings allies such as Japan and the Netherlands up to speed on machine and equipment controls; and the Remote Access Security Act, which would expand export controls on remote access technology, much of it flowing through Southeast Asia. If Congress does not act in the lame duck, he expects it in the next session.

  “Look. I think the industry should be expecting more laws, legislation, and oversight.”at 39:32

US stock market outlook

• Tim Seymour · Seymour Asset Management

  Nvidia's presence in over 900 US ETFs means its problems spill into the broader market.

  Seymour notes Nvidia is in more than 900 ETFs in the US and over 2,000 globally. He argues that what happens with Nvidia happens to the market, which is why the scandal matters beyond one stock. Even though the market rose on the day, Caterpillar and Goldman did the heavy lifting.

  “ETFs. He's in over 900 ETFs in The USA. Over 2,000 globally. ... So what happens with Nvidia happens to the market.”at 12:07

AI infrastructure & data centers

• Dan Niles · Niles Investment Management

  Bipartisan pushback against data centers is the key midterm risk for AI, which he called the time to get negative.

  Niles says he was terrified of the midterms in early October, and that bipartisan pushback against data centers is probably the one thing both sides of the aisle agree on. That made early October the time to get negative. He argues the aftermath is now visible in the sell-off, implying the pressure on data center build-out was the main risk for the AI trade.

  “bipartisan pushback against data centers was the one thing that probably both sides of the aisle could agree on. So that was the time to get negative, not now.”at 16:24

AI chips & semiconductors

• Dan Niles · Niles Investment Management

  Chip stocks' deep drawdown means much negativity is already reflected, which he calls good news.

  Niles notes the semiconductor index peaked on June 22 and was down 36% as of the prior Friday. Fourteen of its 30 members are down more than 50%. He sees this as pretty good news for anyone who thinks negativity is starting to be reflected in prices, and says he doesn't know how the Nvidia situation gets much more negative than it did that day.

  “there was a lot of negativity since the peak back on June 22 in the [SOX]. The [SOX] as of last Friday, I don't know what it is today, but was down 36%. ... So that's pretty good news.”at 18:54

US consumer

• Tim Seymour · Seymour Asset Management

  Consumer spending holds while people have jobs; housing is levered to bond yields, not paychecks.

  Seymour says investors should separate stocks levered to the paycheck from those levered to the bond market. Housing names are levered to bond yields. Consumer names, by contrast, depend on employment: as long as people have jobs, they keep spending, including on hotels.

  “you have to really distinguish between what stocks are levered to the paycheck and which ones are levered to the bond market. So housing names are going to be levered to the bond market. All the consumer stuff, as long as you still have a job, you're still spending money, and you're still going to hotels.”at 29:33

Oil & fuels

• Karen Finerman · Metropolitan Capital Advisors

  Oil's drop lifts consumer sentiment, since gasoline prices fall more slowly than they rise.

  Finerman argues the oil move is large enough to change sentiment. Gasoline prices are stickier on the way down than on the way up, so consumers will feel the benefit gradually. Combined with employment and good jobs data, that explains why consumer-sensitive sectors are doing well.

  “The oil move is enough that it changes sentiment a lot. ... it's little stickier for prices to come down for gas than go up.”at 29:51

Stablecoins & crypto policy

• Tim Seymour · Seymour Asset Management

  Clarity Act won't pass: it failed cloture in September and won't get it with the new Congress.

  Seymour says the Clarity Act was meant to provide perpetual legislation, which would be different from the two years of some sort of clarity that the CFTC as regulator can offer. He doubts the crypto community will accept any version. He argues that if the bill could not get cloture in September under the old Congress, it will not get it with the new one.

  “You don't have perpetual legislation, which is what the Clarity Act was going to do. And I don't think if you couldn't get cloture in September with the old Congress, you're not getting it with the new one.”at 31:19