Huang’s Actions Prompt Nvidia Board to Launch Investigation. Here’s What Investors Need to Know.

Nvidia (NASDAQ:NVDA) chief Jensen Huang has become an international celebrity in recent years, on par with tech leaders like former Apple chief executive officer Steve Jobs or Microsoft's Bill Gates. This is because, like them, Huang is a visionary and led his company to tremendous gains. He recognized the artificial intelligence (AI) opportunity well before it took shape and positioned his company to benefit.

Huang, who founded Nvidia more than 30 years ago, shifted its focus from graphics processing units (GPUs) for the video gaming market to GPUs to serve AI. Today, Nvidia's chips still power video game graphics, but this part of the business is small, and more than 90% of the company's revenue comes from data center sales.

Nvidia's GPUs dominate the market, and its vast portfolio of AI products and services has generated record earnings quarter after quarter, prompting investors to pile into the stock. Over five years, it's soared more than 400%, and Nvidia's market value followed, making it the biggest publicly traded company.

This picture looks bright, but something unfolding right now is darkening it. Nvidia has launched an investigation into Huang's relationship with a person U.S. intelligence agents say is a spy for China. Here's what investors need to know.

Image source: Nvidia.

Nvidia's chip sales in China

It's important to note that Nvidia and Huang are in the spotlight due to the tech company's leadership in AI, an industry where the U.S. and China are competing for dominance. Nvidia sells the world's fastest GPUs and is focused on innovation, with pledges to update its systems regularly and drive this technology well into the future. The U.S. banned sales of these advanced chips to China in the past, then more recently authorized the export of some chips. Huang has lobbied actively since the early days of the ban for export approval and has sought approval from China for the import of Nvidia chips too. However, Nvidia has only sold a small number of chips there this year.

Now, let's consider the news unfolding right now. Nvidia on Sunday said it was opening an independent investigation "in light of recent reporting that founder and CEO Jensen Huang has been the target of a foreign intelligence effort."

The allegations concern Alice Huang, a businesswoman reportedly working for the cloud company MegaSpeed. (Alice Huang is not related to Jensen Huang.) U.S. intelligence agencies say that Alice Huang was a spy for China, according to reports from newspapers including The New York Times.

Meanwhile, Jensen Huang sent an email to staff, obtained by CNBC, saying he had been unfaithful to his wife -- Huang apologized and said he is "fully committed to Nvidia" and will cooperate with the investigation.

Nvidia says its momentum won't be halted

Nvidia issued a statement to CNBC, saying the company's momentum won't be halted and "Jensen is committed to continuing to lead Nvidia as CEO without interruption."

Nvidia stock declined in early trading following the news.

Now, in addition to what I mentioned above, here's what investors need to know. The Nvidia board, in its statement, said that while it is launching an investigation, it "has no reason to believe that either national security or Nvidia secrets were compromised."

From what we know so far, it doesn't seem likely that demand for Nvidia's products will be hurt or that earnings will suffer. Nvidia's innovation should also continue on uninterrupted.

The company could face increased scrutiny from lawmakers, with the idea of ensuring national security. But I wouldn't expect this to slow Nvidia's pace of growth either.

Nvidia's success linked to Jensen Huang

What may be the biggest concern here is the idea that Nvidia's successes are often seen as linked to one person: Jensen Huang. The company hasn't revealed an official succession plan if Huang were to ever step down for any reason. Though Huang isn't about to leave right now, the current situation may stir up concern among investors and weigh on the stock.

It's important to keep in mind, however, that though Jensen Huang is a visionary driving Nvidia, he works closely with 60 direct staff members who all share information. So Nvidia isn't exactly a one-person show. Today, in light of the current uncertainty, investors shouldn't panic and instead should remain focused on the elements that truly drive Nvidia's growth, such as its innovation, current AI demand, and long-term prospects. All of those remain intact.

While the current investigation may signal turbulence for the stock price today and even in the months to come, the company's solid long-term story isn't broken.

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.