Introduction: Nvidia, down $430bn, hires major US law firm to investigate alleged Chinese spy affair
Good morning, and welcome to our rolling coverage of business, the financial markets, and the world economy.
The crisis gripping Nvidia is gathering pace, with around $430bn wiped off the value of the world’s most valuable company since it was hit by a spying scandal.
Overnight, Nvidia announced it has hired a former top federal prosecutor to help probe chief executive Jensen Huang’s relationship with a suspected Chinese spy.
The company’s board have retained Joon H. Kim, the former acting U.S. Attorney of the Southern District of New York, and his firm Wachtell, Lipton, Rosen & Katz to conduct “a thorough and independent investigation”.
Wachtell is a heavyweight corporate law firm. In 2022 it was hired by Twitter to force Elon Musk to complete his $44bn takeover, for example, and has a track record of advising major companies on issues such as mergers and corporate governance.
It will now look into the circumstances of Huang’s affair – thought to be with Alice Huang, who US officials believe is a Chinese spy, and who worked for Nvidia customer Megaspeed.
Although Beijing has denied allegations that it operated an espionage operation targeting Jensen Huang, Nvidia’s value has been buffeted this week.
Yesterday, its shares fell by almost 5.5%, adding to the 4.27% drop on Monday. This has pulled the company’s value down to $4.07tn, from $4.50tn before the story broke last weekend.
The agenda
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9.45am BST: ECB President Lagarde taking part on panel discussion at 9th Paris Peace Forum in Paris
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Noon BST: US weekly mortgage approvals data
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2.15pm GMT: Chancellor John Healey quizzed by Treasury committee on the budget
Key events
Taylor Wimpey cuts homebuilding forecast again
Julia Kollewe
Taylor Wimpey, one of Britain’s biggest housebuilders, has cut its outlook for home completions for a second time this year and blamed rising mortgage and living costs – another sign of a weakening housing market.
The government’s 1.5m new homes target over five years looks even more out of reach, as the company joined others in warning of a “subdued” autumn selling season. It comes after Britain’s biggest brickmaker, Ibstock, issued a profit warning last week.
Taylor Wimpey now expects to complete 10,500 homes this year, excluding joint ventures, below its previous forecast of 10,600 to 10,800 homes. Adjusted operating profit is expected to be at the lower end of its £262m to £299m range. The firm also reduced its outlook in July.
Its order book declined to 6,839 homes as of 8 November, versus 7,253 a year earlier. Taylor Wimpey has also been hit by higher build cost inflation, running at 3% to 4%, due to knock-on effects from the Iran war.
Jennie Daly, the chief executive, said:
“The autumn selling season has been more subdued, as higher mortgage rates and living costs continue to reduce customer affordability.”
Its share price fell 4.5% in early trading and is now 3.5% lower, and dragged down rival Persimmon, which is trading 1% lower.
The Bank of England raised its base rate last week, from 3.75% to 4%, which hit mortgage borrowers but will benefit savers. The Bank’s governor, Andrew Bailey, said another hike could be needed soon, but this (partly) depends on a resolution of the Iran war and the consequent impact on energy prices and inflation.
To entice buyers, Taylor Wimpey is offering more incentives than usual, for example a deposit top-up and one-off mortgage contribution. And it has cut its selling prices by 2.5% year on year.
It said it is well positioned to participate in the government’s new Your First Home scheme aimed at first-time buyers. But the scheme won’t launch until April, and experts have warned that the market could remain sluggish until then.
Investment bank Baird has cut its rating on Nvidia’s shares to ‘neutral’, and slashed their target price for the stock, Reuters report.
Having previously predicted Nvidia could reach $500, Baird have lowered their target price to $200 (reminder, they closed at $168.89 last night).
The FT’s Unhedged column has a handy breakdown of what we know about the Nvidia crisis…
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Nvidia is the indispensable supplier and, increasingly, financier of the infrastructure powering the entire AI boom;
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Huang is the boom’s chief salesperson and its most influential figure who is not running one of the AI labs;
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Huang is a trusted adviser to Donald Trump on the US-China AI race and AI regulation;
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US intelligence has believed for months that Huang had a romantic relationship with Alice Huang.
And some things we don’t know (but which Joon H. Kim may answer!):
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Did Huang mislead Nvidia’s board? Did he disclose that he had a conflict of interest with a major and geopolitically sensitive customer?
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Did the board know US intelligence suspected Alice Huang of being linked to Chinese intelligence?
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Did the company know about the affair when it told The New York Times two weeks ago that the relationship was “not unusual or unexpected” for the executive of an important commercial partner?
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How strong is the evidence that has led US intelligence to conclude that Alice Huang is a spy
And the upshot is that removing Jensen Huang may simply be too big a risk, they suggest.
Although, as my colleague Nils Pratley wrote this week, Huang may look less powerful once the investigation has concluded…
Stocks in the AI sector are back in demand, after cloud computing provider Coreweave reported strong results last night.
Coreweave, which rents out computing clusters powered by Nvidia’s GPU chips, predicted it would hit profitability in 2028, easing some concerns over its financial health.
The cost of insuring CoreWeave’s debt against default has been rising in recent weeks, on concerns that AI demand might not be strong enought to support its borrowing.
Shares in CoreWeave are up 14.4% in premarket trading.
After two days of losses, Nvidia’s stock is expected to recover some lost ground today.
Nvidia’s shares are up almost 5% in premarket trading, ahead of the Wall Street open in just over four hour’s time.
Nvidia’s woes helped to drag Wall Street lower yesterday, where the Nasdaq Composite index fell by 0.75%.
US traders were also jolted by a higher-than-expected US inflation report, which might make an interest rate rise in Decmber more likely.
European markets, though, are moving higher this morning – London’s FTSE 100 index is up 26 points (0.24%) at 10,777 points. Germany’s DAX is 0.6% higher, with France’s CAC 40 gaining 0.35%.
“European markets shrugged off US inflation concerns which prompted a wobble on Wall Street,” says Dan Coatsworth, head of markets at AJ Bell, adding:
“The FTSE 100 advanced 0.8% to 10,835, putting it ever closer to hitting the magic 11,000 level. It only needs to rise a further 1.5% to win the prize. Hitting 11,000 would have psychological benefits, and doing so could help win over naysayers who say the UK market has nothing to offer.”
Reuters have spotted that a Chinese university with deep ties to the People’s Liberation Army bought Nvidia’s powerful H200 AI chips last month despite being on a US export blacklist.
Northwestern Polytechnical University bought two H200 chips last month for 874,700 yuan ($123,000), according to an October 21 procurement record on its website.
Northwestern is a member of the “Seven Sons of National Defense” group of Chinese universities under U.S. sanctions and with a history of conducting defence-related research for Beijing.
The chips were purchased for its management school from Shaanxi Bosuan Network Technology rather than directly from Nvidia, the record shows – highlighting the challenge Washington faces in curbing China’s access to advanced technology.
Nvidia’s shares are likely to remain under pressure as the spy controversy continues to grip the company, warns Susannah Streeter, chief investment strategist at Wealth Club:
Jensen Huang’s superstar position at the centre of the AI world, courted by world leaders and lauded as a visionary, has been dealt a severe blow given the risks he has courted.
But with no clear succession plan in place, the board for now appears to be standing by their man, given how intrinsically his personality seems woven into Nvidia’s valuation. It will depend on what further revelations come out of investigations and, as they progress, the share price is set to stay under pressure.
Wachtell, Lipton, Rosen & Katz also has a pretty distinguished backstory.
Founder Martin Lipton invented the “Poison Pill Defense” in the 1980s to help companies ward off hostile takeovers.
Technically called the “shareholder rights plan”, the poison pill allowed investors to buy more shares at a discount if one shareholder acquired a certain percentage of the company’s stock. This made it harder for corporate raiders to aquire a company without the board’s approval.
The firm was closely involved in the takeover of Getty Oil by Texaco – the largest corporate takeover in history at the time (although it turned sour when thwarted suitor Pennzoil sued Texaco, and won).
And in 2008,a team of Wachtell lawyers advised the US Treasury Department on the takeover of Fannie Mae and Freddie Mac during the financial crisis.
Headquartered in Manhattan, the firm was founded in the 1960s and is said to be the most profitable law firm in the US. It pulled in revenues of $5.085m per lawyer last year, and made profits of $12m per partner – the highest profits per partner ever, according to the Am Law 100 rankings.
Who is Joon H. Kim, who will lead Nvidia investigation?
Joon H. Kim, who will lead the investigation into whether Jensen Huang has been the target of a foreign intelligence effort, has an impressive career history – both in private practice and in government.
From 2017 to 2018, he was Acting US Attorney for the Southern District of New York, where he ran a team of lawyers investigating securities and commodities fraud, mail and wire fraud, public and private corruption, money laundering, cybercrime, and tax offenses.
That included the case of former US representative Anthony Weiner, who was sentenced to 21 months in prison for sending obscene material to a minor.
He also oversaw the prosecution of banker Mehmet Hakan Atilla, who was convicted in 2017 of helping to evade US sanctions on Iran.
Another high profile assignment landed on Kim’s desk in 2021, when he investigated multiple allegations of sexual harassment by New York Governor Andrew Cuomo.
It’s only a month since he joined Wachtell, Lipton, Rosen & Katz, the legal firm hired by Nvidia, from rival New York law firm Cleary Gottlieb Steen & Hamilton. There, he had specialised in white-collar criminal defense, internal investigations, regulatory enforcement, and commercial litigation.
In that role, Kim led an investigation into the workplace culture at the Federal Deposit Insurance Corp, following allegations of harassment and discrimination at the agency.
The drop in Nvidia’s share price this week may embolden the shareholders who are suing the company.
A lawsuit was filed in California this week, alleging that Nvidia and chief executive Jensen Huang mislead shareholders by not disclosing that the matter raised national security concerns.
Nvidia is facing a test of “institutional confidence”, warns Waleed Said, technical analyst at brokerage GivTrade:
Nvidia’s 5.47% decline to $168.89, extending its losses for a second consecutive session, has transformed an executive controversy into a test of institutional confidence. Approximately $430 billion in market value has reportedly disappeared across the two sessions as investors confront allegations involving CEO Jensen Huang’s personal relationship with a businesswoman suspected of connections to Chinese intelligence.
Independent directors have retained Wachtell Lipton, including former prosecutor Joon Kim, to investigate whether the relationship involved foreign intelligence activity or compromised company information. The allegations remain under investigation, and Nvidia says it has no reason to believe secrets or national security were compromised.
Nevertheless, Nvidia’s extraordinary valuation depends partly on confidence in Huang’s leadership, making executive continuity and China-related export exposure unusually consequential.
US envoy to China says relations are ‘bumpy’ after Nvidia affair
The allegations over Nvidia are testing relations between Washington DC and Beijing, according to the top US diplomat in China.
Ambassador David Perdue told Bloomberg Television:
“The situation with Nvidia is another reminder that we have to stay diligent.
“National security is part of this economic conversation because economic security is national security. And so, what we’re doing with China is bumpy right now.”
Introduction: Nvidia, down $430bn, hires major US law firm to investigate alleged Chinese spy affair
Good morning, and welcome to our rolling coverage of business, the financial markets, and the world economy.
The crisis gripping Nvidia is gathering pace, with around $430bn wiped off the value of the world’s most valuable company since it was hit by a spying scandal.
Overnight, Nvidia announced it has hired a former top federal prosecutor to help probe chief executive Jensen Huang’s relationship with a suspected Chinese spy.
The company’s board have retained Joon H. Kim, the former acting U.S. Attorney of the Southern District of New York, and his firm Wachtell, Lipton, Rosen & Katz to conduct “a thorough and independent investigation”.
Wachtell is a heavyweight corporate law firm. In 2022 it was hired by Twitter to force Elon Musk to complete his $44bn takeover, for example, and has a track record of advising major companies on issues such as mergers and corporate governance.
It will now look into the circumstances of Huang’s affair – thought to be with Alice Huang, who US officials believe is a Chinese spy, and who worked for Nvidia customer Megaspeed.
Although Beijing has denied allegations that it operated an espionage operation targeting Jensen Huang, Nvidia’s value has been buffeted this week.
Yesterday, its shares fell by almost 5.5%, adding to the 4.27% drop on Monday. This has pulled the company’s value down to $4.07tn, from $4.50tn before the story broke last weekend.
The agenda
-
9.45am BST: ECB President Lagarde taking part on panel discussion at 9th Paris Peace Forum in Paris
-
Noon BST: US weekly mortgage approvals data
-
2.15pm GMT: Chancellor John Healey quizzed by Treasury committee on the budget
