Nvidia Stock Faces More Pressure as Nscale, Nebius Shares Sink

Nvidia stock gapped lower on Thursday, hitting its lowest level since June last year after CEO and founder Jensen Huang resigned following an admission of infidelity. It then bounced back to $166 as investors bought the dip after the board appointed the CFO as interim CEO. Still, this rebound may brief as its top portfolio companies face major challenges.

Nscale Reported Widening Loss as its IPO Nears

One challenge facing Nvidia is that the companies it has invested in are struggling. One of them is Nscale, a British data center company that plans to go public in a $35 billion IPO. 

The company published an updated IPO prospectus, showing that it made over $1.69 billion in loss in the third quarter. Its revenue stood at $307.5 million, up by 1,344% from the same period last year. The company made a net loss of $1.02 billion in the second quarter of this year.

These metrics are worrying because they mean that investors will likely push back on the $35 billion valuation. For one, its operations have faced some headwinds, with Microsoft walking away from an Nscale data center in England it planned to use. Talks with Anthropic to extend its deal have stalled. 

These developments are important for Nvidia, a company that has become one of its key investors. They come a few months after Firmus, another Nvidia-backed data center company, pulled its Australian IPO as investors pushed back on its valuation.

Nebius Stock Dropped After Earnings

Nvidia stock is also facing headwinds after Nebius, another neocloud company it backs, faces some major headwinds. The stock tumbled by over 18% on Thursday, extending the losses that started in September when it peaked at $301. It has now dropped to $128. 

The stock plunged even as the company published a strong earnings report, which showed that its revenue soared by 571% in the third quarter to $980 million. It also made an adjusted net income of $90.9 million. However, the stock plunged because the management lowered its annual guidance. 

Nebius and other neocloud companies that Nvidia has backed have tumbled by double digits in the past few months. They plunged because of the rising jitters on whether demand is rising or not and their cash burn. Microsoft, a top customer for neocloud companies, is now reconsidering whether to use their services.

Other companies that Nvidia has invested in, including Marvell Technologies, Intel, and Lumentum, have all dropped in the past few months.

All this is happening as investors come to terms with the ouster of Jensen Huang as Nvidia’s CEO following infidelity issues. He admitted to be seeing a Chinese woman who turned out to be a spy. He was also in a relationship with another woman, an Nvidia employee. 

Therefore, there is a likelihood that Nvidia will be investigated by Congressional Democrats. A key issue will be on the company’s sales to China, which are illegal. Also, the company will likely face legal challenges, especially from investors, who will file a class action lawsuit.

Nvidia Stock Price Technical Analysis

The daily chart shows that the NVDA stock price has been in a strong downward trend in the past few weeks. This sell-off intensified this week after the Jensen Huang crisis. It is approaching the death cross pattern, which happens when the 50-day and 200-day moving averages cross each other. 

Therefore, there is a likelihood that Nvidia shares will remain under pressure in the near term. If this happens, it may drop further towards the key support level of $140. In the future, however, Nvidia shares will likely rebound as investors embrace the new normal.

This article provides financial market information, not investment advice. Company forecasts and proposed financing arrangements remain subject to execution risks. Allegations concerning individuals do not establish wrongdoing.