"The Rise and Fall of Icarus": Nvidia Receives Its First Rating Downgrade Due to a Scandal

Baird was the first investment firm on Wall Street to downgrade its rating on Nvidia shares and more than halve its price target following the scandal surrounding the chipmaker’s CEO, Jensen Huang. A Baird analyst titled his research note “The Rise and Fall of Icarus; the Company Will Be Fine,” according to Yahoo Finance. At the same time, Morgan Stanley removed the stock from its list of top picks, Bloomberg reports .

Baird strategist Tristan Guerra downgraded Nvidia’s stock to “neutral” and lowered the price target from $500 to $200, according to Bloomberg. The new target still implies a 15% increase from the opening price on November 11. On November 8, Nvidia’s CEO admitted to having an affair: his alleged girlfriend is suspected of spying for China. As a result, the chipmaker launched an internal investigation and faced a lawsuit from shareholders. In addition, U.S. authorities have taken an interest in the matter.

“We are downgrading Nvidia to Neutral until the uncertainty surrounding the U.S. government’s likely actions following the upcoming congressional hearings is resolved and until government investigations reach their conclusions, as well as until the assessment of the short-term impact on revenue from changes to the company’s distribution channels and potential write-offs is complete, and until there is clarity on whether the CEO will remain in his position,” Guerra wrote.

The analyst also highlighted other short-term risks for Nvidia’s stock, aside from the scandal, including a new ban on exports of H200 chips to China. “We believe that small shipments are currently being made to Asian warehouses, where part of the inventory is awaiting Chinese demand. According to our estimates, this could result in write-downs totaling $5 billion,” Guerra said.

Among other factors exerting pressure, the analyst highlighted the tightening of export controls—in particular, closing loopholes for chip shipments via data centers in Southeast Asia, as well as possible actions by the U.S. Department of Justice against Megaspeed, a company formerly headed by Huang’s alleged fiancée.

"Historically, demand for graphics processors from China has always exceeded Wall Street's expectations, and it has been extremely difficult to quantify it precisely," Guerra emphasized.

Meanwhile, analysts at investment bank Morgan Stanley have removed Nvidia from their list of top stock picks, according to Bloomberg.

"Short-term uncertainty will persist, as CEO Jensen Huang's leadership is crucial to the company's strategic direction," the analysts noted.

Several analysts have lowered their price targets for Nvidia shares amid the scandal. For example, Mizuho cut its target by 20% at once—to $250. On November 10, Citigroup lowered its target from $315 to $285, and Wells Fargo lowered its target from $315 to $300.

Rating downgrades by analysts for Nvidia are extremely rare, and even with Baird’s decision, Wall Street sentiment toward the stock remains generally positive, Bloomberg notes. Approximately 94% of the analysts tracked by the agency recommend buying the stock. That’s 77 opinions; by comparison, only four analysts have a “hold” rating, and only one has a “bearish” (meaning a recommendation to sell). The analysts’ average price target indicates growth potential of nearly 90% from Tuesday’s closing price.

Nvidia shares have fallen nearly 30% from their October high, closing on November 10 at their lowest level since March. Although the stock rose 2.3% after the market opened on Wednesday, it is heading for its sixth consecutive week of losses, the longest such streak since October 2012.

The next key event for Nvidia stock will take place next Tuesday, when the company reports its third-quarter financial results.

This article was AI-translated and verified by a human editor