On Thursday, November 12, US AI-linked stocks faced fresh selling pressure following the sudden resignation of Nvidia CEO Jensen Huang. Nvidia shares plunged nearly 12% during trading before recovering some losses to close 4.3% lower. The Nasdaq Composite ended 0.39% lower, while the S&P 500 and Dow Jones fell 0.39% and 0.36%, respectively. Other AI-linked companies also faced heavy selling. AI cloud company Nebius fell 16.8%, while CoreWeave declined 6.9%. Nvidia has also lost significant market value amid the latest developments.

On November 8, Nvidia CEO Jensen Huang admitted to having an extramarital affair in a message to Nvidia employees. His admission came amid reports that he had a relationship with Alice Huang, a Chinese businesswoman — whom US intelligence agencies reportedly identified as an asset of China's Ministry of State Security (MSS). The allegations suggest that the relationship could have been used to gather information about Nvidia and potentially influence its business decisions. The reports prompted investigations into his personal and business dealings. This led to the resignation of Jensen Huang as the CEO of Nvidia Corporation.

Nvidia's board appointed Chief Financial Officer Colette Kress as interim CEO while it searches for a permanent replacement. Huang had led Nvidia for more than three decades and turned it into one of the world's most valuable technology companies. Its advanced chips power the data centres used by companies such as Microsoft, Google and Amazon to develop and run AI systems. His sudden exit has therefore raised concerns about the company's future leadership and its role in the global AI industry.

The US AI industry has attracted massive investments over the past few years, with technology companies spending billions of dollars on chips, data centres and other infrastructure. Investors are now questioning whether the expected returns from AI will justify these investments. The latest stock market movements have added to fears that the AI boom could be heading towards a major correction.

Several developments point to growing pressure on the industry. The first is the sharp fall in AI-linked stocks and the loss of market value. Nvidia has shed nearly $500 billion in market value over the week, while other companies linked to AI infrastructure have also suffered losses.  Investor confidence is also a major concern. Companies have invested heavily in AI based on expectations of rapid growth and rising demand. However, investors are now questioning whether AI services will generate enough revenue to recover these costs.

There are also concerns over future spending on AI infrastructure. Major technology companies have announced massive plans to build data centres and expand their computing capacity. If demand for AI services fails to meet expectations, companies could delay or reduce these investments. Opposition to new data centres over environmental concerns  — their electricity and water requirements could also slow down expansion.

AI startups and infrastructure companies could face difficulties in raising fresh funds if investors become more cautious. Many of these companies depend on external funding to build facilities, purchase chips and expand their operations. A prolonged decline in investor confidence could affect their ability to sustain these projects.

Another sign is the correction in company valuations. Several AI firms had seen their stock prices rise sharply on expectations of future growth. Investors are now reassessing these valuations as questions emerge over their actual earnings and profitability.

The developments in the US come after China's AI stock market has already suffered a major correction. In October, Reuters reported that China's STAR 50 index, which tracks leading technology and semiconductor companies, had fallen around 40% in less than four months. The decline wiped out approximately $480 billion in market value. China's broader blue-chip index also fell around 20% from its June highs.

The Chinese sell-off followed a two-year rally in AI and semiconductor stocks. Investors had poured money into companies expected to benefit from the country's growing AI industry. However, concerns over high stock valuations, uncertain demand for AI products and US restrictions on Chinese technology exports triggered a sharp reversal. Some companies involved in supplying equipment for AI data centres also suffered steep losses. The US is now facing similar concerns over the sustainability of its AI boom.

The latest selling has also spread beyond Nvidia to AI cloud companies and data centre operators. The pressure on these companies shows that investor concerns are no longer limited to one chipmaker. A prolonged sell-off could affect the wider technology industry and slow down the massive infrastructure expansion behind the global AI boom.

Savio Rodrigues

Savio Rodrigues is a Research Analyst at Escape Velocity MediaWorks Pvt Ltd and writes for Chakra News on Defence, Geopolitics, National Security. He holds a Master’s degree in International Relations from the University of Mumbai.