NASDAQ soars on Monday despite Nvidia sell-off

The NASDAQ Composite (IXIC) surprisingly rallied despite a major sell-off by Nvidia (NVDA). The leading chipmaker of the AI boom shed between 4-6% on Monday after CEO Jensen Huang admitted to an extra-marital affair with an alleged Chinese spy over the weekend.

That $270 billion sell-off hasn't stopped the broader market, and the NASDAQ Composite rallied 2.6% at last look. The S&P 500 and Dow Jones are also up over 2% at the time of writing.

Nvidia deals with Huang situation

The New York Times reported over the weekend that US government officials believe that Megaspeed executive Huang Le was an asset of Chinese intelligence. Megaspeed is a Singapore-based data center company that purchased $4.8 billion worth of Nvidia AI chips over the last two years.

Megaspeed was already under US government scrutiny for allegedly circumventing US export bans on Chinese companies having access to leading Nvidia chips used in AI data centers. The company provides customers with remote access to computing capacity hosted outside of mainland China.

Jensen then addressed the accusations directly on Sunday, penning an apology to Nvidia employees and his family and admitting to the affair. Nvidia's board has opened an inquiry on the situation, but most analysts view it as a hiccup.

“While the Board has no reason to believe that either national security or Nvidia secrets were compromised, the Board’s inquiry will examine all available information,” Nvidia's board of directors said in their statement.

Most Wall Street analysts conclude that Jensen Huang is too much of a key player to replace. Nvidia's CEO has personal relationships with suppliers and customers around the world that make replacing him as CEO an unlikely proposition. Citi analyst Atif Malik said the key issues for investors are a potential increase in regulatory scrutiny around commercial AI customers, particularly those in China, as well as export control compliance of Nvidia's H200 chips. Malik maintains his Buy rating and $315 price target on Nvidia shares.

NASDAQ refocuses on the AI trade

On the other hand, investors appear to have redirected some of their stakes in Nvidia to the wider AI trade. Monolithic Power Systems (MPWR), Advanced Micro Devices (AMD), Bloom Energy (BE) and Coherent (COHR) have all witnessed double-digit gains intraday. As large-cap members of the NASDAQ Composite, they are also much of what's powering the index's gains on Monday.

Part of the story is that some investors believe last Thursday's 5.5% sell-off on the back of the Democrats' midterm sweeps might have overdone it. While analysts think that Democratic politicians at the state level are likely to slow down the AI buildout at the margins, most don't think that slowdown will occur until 2028 at the earliest.

Additionally, SpaceX's (SPCX) $45 billion deal with Anthropic has also excited some of the pessimists. The agreement has Anthropic purchasing billions of dollars worth of space annually in the former's Colossus 1 and Colossus 2 data farms. The multi-year deal follows Google's announcement that it will be spending approximately $1 billion per month on renting SpaceX data center compute. SPCX stock rallied over 5% on the news.

NASDAQ Composite technical analysis

Due to last Thursday's rout, the IXIC remains under a cloud of suspicion. Thursday marked a lower low on the chart as the November 5 candle pushed below the July 29 low to mark a "lower low". That bearish signal was made worse by the fact that it happened below the 200-day Simple Moving Average (SMA), meaning that quite a few chart nerds likely think there's more downside ahead.

In a scary scenario, more bad news for the AI trade could push the index all the way down to the Iran war nadir from March circa 20,700, which would amount to a near 20% decline from here.

But if IXIC can re-anchor itself above the 200-day SMA for the rest of November, then bulls will likely step in to retest the 50-day SMA near 26,430. Overtaking the 50-day would change sentiment, and many traders would then expect a return to the all-time high from early October.