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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
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
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