Bernstein Downgrades NVIDIA to Market Perform, $200 Price Target

Bernstein SocGen Group analyst Stacy Rasgon downgraded NVIDIA (NASDAQ: NVDA) from Outperform to Market Perform with a price target of $200 (from $400).

“Press stories over the weekend reported on NVDA CEO Jensen Huang’s indiscretions with Alice Huang, CEO of NVIDIA customer Megaspeed and (allegedly) a possible intelligence asset for China. Mr. Huang admitted to the affair on Sunday, with NVIDIA’s board of directors announcing an independent investigation into his actions.

Last night the issues broadened with the New York Times reporting that Mr. Huang had an affair with a direct report (allegedly Kimberly Powell, the company’s VP of healthcare ), followed by a Wall Street Journal report suggesting the company is preparing to oust him.

In the wake of the original reports we highlighted the viability of Jensen’s continued tenure at the company’s helm as the biggest risk to the stock stemming from the allegations. And at the time our belief was that it was in no one’s best interest (shareholders, the BoD, or even the US government) to see him gone.

That being said, with the new allegations it feels impossible to us for the board keep him in the role (we have seen other CEOs in our coverage terminated for far less…). And if it turns out the board doesn’t remove him now this would clearly bring further risk as more allegations seem likely to surface from here.

So now what? On the positive, the fundamentals of the business (if not the leadership) are clearly still intact with numbers that remain massive (and probably still headed higher).

We don’t think the company should have huge issues operating while engaged in a search for new leadership. And (of course) the shares are almost absurdly cheap (and getting cheaper as we speak); clearly there is a lot of bad news getting priced in here.

On the other hand, we find it hard to advocate stepping in here in size as there will no doubt be more allegations to come (there is a trope that says if you find two ants in your kitchen the best estimate of the total number of ants in your kitchen is not two…), both from internal issues as well as headlines related to the business, new governmental investigations etc.

Adding on the new variable of who will take the reins (internal? external?) and anything else they may or may not uncover creates additional uncertainty (and we can’t even begin to speculate as to who they might find to fill Jensen’s shoes).

For the supply chain itself we wonder what will happen to the company’s myriad of investments in the space, various backstops and residual guarantees.

On the other hand some of their competitors (who have seen some strength in recent days on newsflow) will probably continue to see support”

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