The Nvidia spy saga shows the danger of espionage in AI — and concentration

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The fallout over Nvidia CEO Jensen Huang’s affair with an alleged Chinese spy is highlighting the risks of espionage in the AI industry — and the dangers of intense concentration in a sector that’s increasingly critical to the global economy.

Consider this: There are just a handful of firms globally that control the future of AI, a technology that’s becoming tightly linked to government and industry — and vital to the health of the world’s economy, too. That makes those companies prime espionage targets.

But: Silicon Valley companies have historically under-prepared for the threat of foreign espionage and sought to downplay espionage probes over fear of damaging stock values. (Alarmingly, Trump and other administration officials seem to have sat on the news that Huang was involved with an alleged spy for a year out of concern about damaging Nvidia and thus potentially ceding ground in the AI fight to China, the New York Times reports.)

Then there was the predictable fallout. Nvidia stock was down about 27% from its 6 October peak at close of trading yesterday. Fleeing investors feared that either the US government would impose restrictions on Nvidia or that more damaging details would come out, Zacks’ Chief Equity Strategist John Blank told CNBC.

And more fallout: Those selling the stock were proved right about the second point, at least after the New York Times broke the news that Huang was also said to be having an affair with a subordinate at his company — prompting an after hours selloff and taking the stock down to about 33% below its peak by 1 am Cairo time today.

There are two obvious interests for the Gulf here. First, Gulf sovereigns are heavily invested in AI and any major scandal that ripples throughout the AI industry will affect their pocketbooks. (Known Gulf sovereign investments directly in Nvidia are quite small. Mubadala, for example, owned shares worth about USD 13 mn at the end of June.) Second, the UAE and Saudi Arabia are both customers of Nvidia’s top-of-the-line chips and a government crackdown on the company could endanger that supply.

Will the government crack down? The White House is showing zero interest in imposing any consequences on Nvidia, per the New York Times. Congress is more interested. Huang looks set to meet behind closed doors on 18 November with lawmakers on the House Foreign Affairs, Intelligence and China Select committees to discuss the matter. Plus, newly-emboldened congressional Democrats may be interested in getting tough with an industry that has aligned itself with Trump the past two years.

And yet: Lawmakers are also likely wary of getting too rough with Nvidia out of fear of further damaging a key player in what’s currently the most important US industry. If Nvidia runs into trouble, there’s no other US firm producing AI computer chips at a level that could pick up the slack. Politico’s Decoded newsletter captured this conundrum nicely with the headline, “Is Jensen Huang too big to fail?”

A notable exception: Sen. Kevin Cramer, a top Republican on the Senate Banking Committee, was a rare exception. He told Politico that Huang should resign, noting both “the potential for extortion” and uncertainty about what information the alleged spy, Alice Huang, the CEO of a Singaporean customer of Nvidia, may have accessed. “Whatever else there is, we don’t know. And to me, that’s a security risk,” Cramer said.

THE BIG QUESTION: Will Huang even be CEO by the time he pulls up a chair in the House? As we hit “send” on this issue, Bloomberg says the company’s board is meeting remotely and is on the verge of kicking Huang out. The company’s CFO likely to succeed the charismatic Huang, at least in the interim, it suggests. The Wall Street Journal and New York Times reported overnight that the board was mulling removing Huang from the top job, while Bloomberg’s Vlad Savov thinks there’s a chance Huang could stay on as chairman. —Joe

Now, let’s get to today’s Lede, which focuses on legal and regulatory hurdles facing Egypt’s nascent data center industry.

Do you want to have lunch with us on Thursday, 10 December? We’re setting a table in DIFC for a small, exclusive group of readers and business leaders in the UAE. If you’d like to be there, just hit reply to this email, tell us who you are and what you do, and we’ll take it from there.

Wait, lunch? Yes, lunch. Two hours, one table, no panel and no slides — just an open conversation with interesting people. We want to hear how the people running businesses in the UAE see the next twelve months: what’s working, what’s getting harder, and where the money is actually going now that the region is open for business again. Expect good food, good company, and the kind of conversation nobody has on stage.

Seats are strictly limited and the lunch is invitation-only, but we’re planning on doing this more often. So, yes, we won’t be able to accommodate everyone, unfortunately. We’ll be in touch with the people we’re inviting over the next two weeks or so with the details.