Eh, So What?

If you ever doubted this market’s ability to shrug off inconvenient news, today’s activity should put that notion to rest.  While there have been suspicions about Nvidia’s (NVDA) CEO, Jensen Huang, having an affair with a female executive at Singapore-based Megaspeed for some time, they were confirmed in a statement by the company yesterday afternoon.  The fact that Mr. Huang had an extramarital affair is something he’ll need to explain to his wife; we all need an explanation about the company’s acknowledgement that “…CEO Jensen Huang has been the target of a foreign intelligence effort.”

Since the company’s statement, there has been copious reporting about the matters surrounding NVDA.  Undoubtedly there will be far more to come.  The ramifications could be enormous for both the AI industry and national intelligence.  Among other things, in 2024 the Commerce Department began investigating whether Megaspeed had been illegally selling NVDA chips to China, but the investigation stalled.  Published reports assert that earlier this year, Secretary of State Rubio oversaw the drafting of a memo warning of Mr. Huang’s relationship with a Chinese spy.  This is not a story that is going away anytime soon.  Expect more details to emerge and official investigations to proceed, whether by the current administration or by the soon-to-be-installed Congress.

NVDA’s role in the AI industry and the stock market’s ascendance is indisputable.  The company has the second-highest weighting in the S&P 500 (SPX) and Nasdaq 100 (NDX).  Perhaps more importantly, it sits at the center of a vast web of interlocking financial agreements (loans and/or equity investments) with several of its suppliers, customers, and other counterparts.  Some have referred to NVDA as “the central bank of AI,” and I believe that it is a reasonable characterization.  AI adoption has been critical to the current bull market, and NVDA is the key supplier to that industry.  It is nigh impossible to imagine the tech sector without NVDA at the center of it.

Hence, today’s 2% rally in SPX and 3% jump in NDX are testament to traders’ ability to compartmentalize inconvenient news, even if it concerns one of the market’s key bellwethers.  After last week, there was a substantial dip to be bought, and there are many who switched from bargain hunting this morning into rally-chasing mode once the rally took hold.  Lower crude futures, based upon hopes for detente, if not peace, in the Persian Gulf, might be the proximate cause for high spirits in the equity market.  Their 4% dip is undoubtedly welcome, but when we see all 11 SPX sectors trading higher and advancing stocks leading declines by about 4:1, the positive psychology, or plain old FOMO, is palpable.

Furthermore, NVDA is down by less than 5%.  That stinks if you are a shareholder, but it seemingly could, and maybe should, be quite a bit worse.  The stock was already well off its recent highs, but it is hard to imagine a stock not doing worse if its CEO were the potential subject of espionage.  Not only are NVDA’s woes insufficient to upend the broad market, but they also aren’t even enough to daunt the semiconductor sector.  The SOX index is up by more than 5%.  It’s a rally day, to be sure.  Imagine if NVDA were able to participate…