Nvidia’s Market Slide Deepens Following DOJ Antitrust Subpoena
Nvidia (NASDAQ: NVDA) is under increasing scrutiny as the U.S. Department of Justice ramps up an antitrust investigation into the company’s practices. The DOJ issued a subpoena to Nvidia as part of its ongoing probe, raising concerns about the company’s market dominance in the artificial intelligence chip sector.
Nvidia, which has benefited immensely from the AI boom, now faces questions about whether it is engaging in anti-competitive behavior to maintain its stranglehold on this rapidly expanding market.
The news of the DOJ’s subpoena had an immediate and dramatic impact on Nvidia’s stock. Before the subpoena’s disclosure, Nvidia shares suffered a sharp fall of nearly 10%, marking one of the steepest drops in recent history, leading to a staggering $279 billion loss in market value earlier in the week.
Financial analysts and investors are keeping a close watch on the stock as the probe unfolds. While Nvidia’s meteoric rise has been one of the most significant market stories of the past year, the antitrust concerns are injecting a level of uncertainty into the company’s future performance. The company’s stock price fell from a record high earlier in the year but remains significantly higher than it was at the start of 2024.
Antitrust concerns
The DOJ’s inquiry centers on Nvidia’s dominance in the AI chip market. As AI has become increasingly crucial to industries ranging from tech giants like Microsoft and Meta to national security applications, Nvidia’s chips have become indispensable. The investigation is focusing on whether Nvidia has made it difficult for companies to switch to other suppliers, essentially forcing buyers to remain loyal to its products.
According to sources close to the investigation, regulators are particularly interested in whether Nvidia penalizes companies that don’t exclusively use its AI chips. The concern is that Nvidia’s tight grip on AI infrastructure could give it an unfair advantage, leaving little room for competition. The DOJ has been in contact with other tech firms to gather information, although it has not publicly commented on the details of the probe.
In response, Nvidia has defended its position, stating that its success is a result of the superior performance of its products.
“Nvidia wins on merit, as reflected in our benchmark results and value to customers, who can choose whatever solution is best for them,” the company said in an emailed statement.
One of the focal points of the DOJ investigation is Nvidia’s recent acquisition of RunAI, a software company that specializes in managing AI computing. The deal, announced in April, has raised concerns among regulators that it may further entrench Nvidia’s market dominance. RunAI’s software is designed to optimize the use of AI chips, and regulators are worried that the acquisition could make it even more difficult for customers to switch to competitors.
There are also allegations that Nvidia offers preferential treatment to customers who exclusively use its chips or buy complete systems from the company, raising additional antitrust concerns. While Nvidia denies these claims, the DOJ’s investigation appears to be honing in on whether these practices limit competition in the AI chip market.
Founded in 1993, Nvidia initially made its mark by developing high-performance graphics cards for gaming. However, the company’s expertise in chipmaking soon found a broader application in AI. The chips Nvidia produces are particularly suited for AI model training, a process that requires handling vast amounts of data. This pivot toward AI chips has transformed Nvidia into a linchpin in the AI revolution, with its products now powering some of the world’s largest data centers.
Major tech firms such as Microsoft and Meta allocate over 40% of their hardware budgets to Nvidia chips. During a recent global shortage, Nvidia’s highly sought-after H100 accelerator chips were selling for as much as $90,000 apiece. The scarcity of alternatives has only increased Nvidia’s leverage in the market.
Nvidia’s success, however, has come at a cost. Rival companies like Intel and Advanced Micro Devices (AMD) have struggled to keep pace. Analysts estimate that Nvidia will generate $120.8 billion in revenue in 2024, a monumental increase from just $16 billion in 2020. In fact, Nvidia is poised to bring in more profit this year than AMD’s total sales, further underscoring its market dominance.
Nvidia’s growing influence over the AI chip market has not gone unnoticed by regulators worldwide. AI is increasingly being viewed as a critical component of economic growth and national security. Governments across the globe are grappling with the rapid rise of AI technologies and their potential to reshape industries, economies, and even geopolitical power dynamics.
In the U.S., access to advanced AI capabilities is now a national priority, with the federal government taking steps to ensure that AI research and infrastructure remain at the cutting edge. Nvidia’s dominance in the AI hardware space has sparked concerns that a single company could wield too much control over a technology that is so essential to the future.
Information for this briefing was found via Bloomberg and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
