A U.S. Commerce Department investigation into Megaspeed, a Singapore-based company accused of smuggling advanced Nvidia Corp. AI chips to China, was transferred to the Department of Justice after Nvidia intervened, the New York Times reported1,5. Nvidia general counsel Tim Teter reached out for information to the Commerce Department during its inquiry.
The Megaspeed connection
Megaspeed spent $4.8 billion over two years as a major Asian customer of Nvidia2. An activist report by Culper alleged the company was spun off from Chinese gaming company 7Road and financed by Chinese e-commerce giant Alibaba via shell companies. U.S. officials believed that Alice Huang, who was associated with Megaspeed, was passing information to the Chinese side, according to the New York Times3. She also maintained a personal relationship with Nvidia CEO Jensen Huang, who had contacts with the White House and participated in discussions about exports of advanced semiconductors to China. These allegations remain under investigation.
On November 8, Nvidia announced an independent investigation into possible foreign intelligence influence targeting Huang4. Huang acknowledged an extramarital affair and apologized to colleagues. The company said it had no reason to believe that government secrets or its confidential information had been compromised. The Chinese embassy denied the espionage allegations.
There is no public evidence that Jensen Huang was recruited, knowingly disclosed secrets, or changed his decisions under foreign influence, according to the Lansing Institute. On November 5, an Nvidia spokesperson said that Huang's interactions with Megaspeed were "normal and not unusual". Morningstar noted it is unclear whether the spokesperson relied on false statements from the CEO.
Market and strategic fallout
Preventing Beijing from acquiring Nvidia's most sophisticated chips remains a U.S. government priority aimed at hindering China's advanced AI development. While Nvidia sells less sophisticated H200 chips to Chinese buyers with U.S. approval, the controversy intensified a crisis of confidence in the AI trade. The sentiment contributed to a $2.3 trillion wipeout in the Nasdaq last Thursday, with the index $5.7 trillion below its October peak amid worries about stretched valuations and mounting debt. Nvidia stock fell roughly 20 percent over the past month.
Morningstar maintained its $310 fair value estimate for Nvidia, rating the stock's uncertainty as "Very High". The firm said it still views AI as compute-constrained and does not expect the news to mute near-term or medium-term revenue. Morningstar also said it cannot rule out the investigation fading away and Nvidia returning to business as usual. However, the firm noted the investigation may lead to Jensen Huang's ouster, which could result in less AI dealmaking and financing, greater regulation, and more political backlash around artificial intelligence.
ANALYSIS The transfer from Commerce to DOJ marks an escalation from an administrative export-control matter to a criminal investigation, raising the legal stakes for both Megaspeed and any individuals involved.