Nvidia Shares Rebound in Premarket Trading as Morgan Stanley Drops It as a Top Pick

The stock was 5.3 percent higher at 5:47 a.m. Eastern time, after closing down 5.47 percent on Tuesday and falling 4.3 percent on Monday. The bounce comes before the company's quarterly earnings on November 17. Investors will look to those results for any sign that the inquiry is hurting the business.

Morgan Stanley said in a Wednesday note that Huang's leadership is "crucial" to the company's strategic direction. The bank cut Nvidia from its top-pick list after the shares fell more than 25 percent since it added them on October 2.

On Tuesday, Nvidia hired the law firm Wachtell, Lipton, Rosen & Katz to examine whether company secrets or national security were compromised. People familiar with the matter told CNBC that Huang has tried to project "business as usual", returning to the office on Monday and holding meetings there on Tuesday.

Bank of America analyst Vivek Arya set out three scenarios in a Tuesday note. In the first, the damage is contained and the leadership stays in place. In the second, prolonged uncertainty weighs on the valuation before earnings. In the third, the matter escalates, with "adverse findings, leadership disruption or tighter restrictions requiring earnings reassessment."

Zacks chief equity strategist John Blank told CNBC the selloff reflected two fears: that Washington might impose further restrictions because of the affair, and that more damaging details could come out. "It's not good for Nvidia. It's not good for Jensen Huang. It's certainly not good for the AI trade," he said.

The November 17 report will be the first earnings call since the affair became public, and analysts are likely to ask Huang directly about the board's inquiry.