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Shares of Nvidia tumbled more than 5% Monday after the computer chipmaker, central to the artificial intelligence race, opened an investigation into reports that CEO Jensen Huang was the "target of a foreign intelligence effort."

Nvidia's announcement of the investigation on Sunday followed Huang's acknowledgment that he had been intimate with a business executive who, according to The New York Times, U.S. intelligence determined was gathering information for China.

China's Foreign Ministry dismissed the spying allegations Monday, calling them a smear campaign against Beijing.

Nvidia chips power many of the data centers and computing systems used to train and run AI models. Its advanced processors have also been a focus of U.S. export restrictions aimed at limiting China's access to cutting-edge semiconductor technology.

There's a small chance Huang is removed or steps down from the CEO post, wrote Dan Ives, partner and senior managing director at Yorkville Ives & Co., saying that Huang is "not replaceable."

"On the heels of last week's Blue Tidal Wave, this will also increase momentum for more regulatory scrutiny in the Beltway, especially around China and chip restrictions at a time the AI arms race is heating up into its next gear between the U.S. and China," Ives wrote.

Still, Ives said there is a risk that Huang could be removed as CEO depending on the board's investigation and that it will remain an overhang on shares in the near term.

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