Is Nvidia a Bad-News Buy or a Stock to Avoid?

Nvidia (NVDA -5.47%) stock has been one of the major winners of the artificial intelligence (AI) revolution. This is because the tech giant has built an AI empire, offering the world’s fastest AI chips, known as graphics processing units (GPUs), and a full portfolio of supporting products and services. AI customers have snapped up Nvidia’s chips, with demand often exceeding supply as the company launches new updates.

All of this has fueled mind-boggling earnings growth, with revenue and profit rising in the double and triple digits. Investors recognized this early in the AI boom, and this helped the stock soar 1,100% from the start of 2023 through the end of last year. This year has been a rockier one for Nvidia and other AI powerhouses as investors turned more cautious on the space. They worried about higher inflation in the U.S. and questioned whether data center spending would continue at current levels.

And just this week, particularly bad news concerning Nvidia emerged. Nvidia opened an investigation into chief Jensen Huang’s relationship with a person U.S. intelligence agencies are calling a Chinese spy. Against this backdrop, is Nvidia a bad-news buy or a stock to avoid? Let’s find out.

Jensen Huang guides Nvidia’s direction

First, let’s take a step back and consider Huang’s role at Nvidia. He founded the company more than 30 years ago, and over time, he has been at the helm, guiding its direction. Huang made a major bet on AI about a decade ago, deciding to shift Nvidia’s GPU focus to serving that market. Clearly, it was a winning decision. And since that time, he has become the face of AI development, speaking around the globe about the technology today and its future potential.

Huang also has lobbied to bring Nvidia’s chips back to China after a U.S. export ban. He won that battle, with the U.S. permitting the export of certain chips, but China hasn’t yet fully accepted imports. Nvidia has only exported a small number of chips there this year. But this situation brought the U.S./China AI race to the forefront.

All of this demonstrates something big: Huang is the driving force at Nvidia, a leader whose name is known around the world and well beyond tech circles. That suggests trouble for him could equal trouble for the company.

Now, let’s consider the latest news. Nvidia on Nov. 8 said it is launching “an independent investigation in light of recent reporting that founder and CEO Jensen Huang has been the target of a foreign intelligence effort.”

Huang, in an email to staff obtained by CNBC, said that he is “committed to protecting Nvidia and supporting America’s national security.”

The company also said in a statement to CNBC that Huang is committed to leading Nvidia “without interruption.”

Nvidia stock is dirt cheap right now

Nvidia’s stock declined 4.2% in the following trading session, leaving the stock trading at 19x forward earnings estimates — a level that’s dirt cheap considering the company’s track record of growth throughout the AI boom and prospects down the road.

Still, the current investigation introduces an element of uncertainty. So you may be wondering if you should pick up shares of Nvidia after this recent bad news or if you should avoid the stock.

The major risk the company faces is the possibility that Huang could step down or be forced out. Since he is a visionary who has driven the company for decades, and Nvidia hasn’t set out a succession plan, investors could frown on such a scenario — and that could weigh on stock performance. Another risk is that lawmakers might favor more limits regarding chip exports to China or increased regulation, moves that may weigh on future growth.

The decision to buy or avoid Nvidia right now depends on your comfort with risk. If you’re a cautious investor, you might favor waiting for the results of the investigation before getting in on the stock. Though Huang intends to remain at the helm and the board has expressed confidence in him, uncertainty will linger until the investigation is complete. And this could hurt the stock in the near term. Any possible departure by Huang would also be bad news.

That said, the current turmoil doesn’t change the demand present in the AI market or the quality of Nvidia’s chips and innovation. Aggressive investors with a well-diversified portfolio might consider picking up a few shares of Nvidia at today’s dirt cheap levels and holding on as the storm passes.