Nvidia shares were down around 5% in premarket trading Monday after the tech giant launched an investigation into CEO Jensen Huang's relationship with a businesswoman who intelligence agencies say is a Chinese spy.

U.S. intelligence agencies said Alice Huang, an executive at cloud company Megaspeed, has been passing information to Beijing, according to reports in The New York Times and The Financial Times.

Nvidia said its board has launched an independent investigation following the reports that Huang was the target of a "foreign intelligence effort."

Huang "fully supports the review and has committed to cooperating with it," the company said in a Sunday statement.

The co-founder and CEO told staff in an email that he had "fallen short" of his responsibility to serve his colleagues, the board, partners and shareholders around the world.

"I was unfaithful to my wife. My actions hurt her and our children. There is no excuse for what I did. I am deeply sorry," Huang said in the email.

China's Foreign Ministry spokesperson Guo Jiakun said on Monday the "so-called Chinese spy narrative" was unsubstantiated, Reuters reported.

Nvidia was last trading down 5.2% in premarket trading.

Nvidia leadership under scrutiny

The key question for investors will be whether Huang will remain as CEO, according to Dan Ives, senior managing director at Yorkville Ives & Co.

"This is a black eye moment for Jensen and will spark multiple congressional inquiries at a minimum and will create an overhang on the stock for a myriad of reasons," Ives said in a Sunday note.

"There is clearly risk that Jensen could be removed as CEO depending on the Board investigation and this will add risk to the stock as he is so important to the Nvidia story and strategy globally. This will also increase major scrutiny regarding selling chips to China which remains a key battleground issue in DC," Ives added.

Tech stocks took a hammering last week as investors reassessed the data center build-out after Democrats won control of Congress.

Asian tech stocks rose across the region on Monday, rebounding from Friday's losses. Shares of U.S. chipmakers were slightly lower in premarket trading, with Intel, Marvell, Qualcomm and Arm all down over 1%.

Joachim Klement, investment strategist at Panmure Liberum, said the impact is currently contained to Nvidia.

But if Huang's position is "endangered," then "Nvidia might cut back on supporting other companies, whether it's in Asia or in the U.S., that might then spread a little bit more into the other semiconductor names," he said.

Support for Huang

U.S. President Donald Trump on Sunday praised Huang's leadership but said he hadn't spoken to the CEO about the investigation.

"I think he's an honorable guy. I think he probably has an excuse for it. You have to hear it," the president told reporters.

"He's done an amazing job for our country," Trump added.

Shaun Maguire, partner at Sequoia, also defended the tech giant CEO, saying in a post on X that Huang is "one of the greatest entrepreneurs of this generation."

He added: "two mistakes don't make a right, and I believe Jensen is irreplaceable for America's AI leadership."

SpaceX and Tesla CEO Elon Musk reshared Maguire's post, adding that he agrees with the venture capitalist's statements.

Nvidia reports third-quarter earnings on Nov. 17 and will hold a major conference in Washington, D.C., at the end of the month.

— CNBC's Kif Leswing and Kamaron McNair helped contribute to this report.