- Investigation into chip designer’s business practices
- Record $279 billion already wiped off market cap
- Extra layer of uncertainty attached to investment case
A week after reporting another record quarter, Nvidia (NVDA:NASDAQ) is facing a fresh challenge. The chip designer is now firmly in the sights of US Department of Justice over complaints that it is violating antitrust laws.
Investors are worried. Since the news broke (3 Sep), the stock has plunged, falling around 9.5% during the Tuesday session, and facing further declines later today, according to pre-market data.
Already the company has seen a record $279 billion wiped off its market value, £10 billion more than the entire market value of AstraZeneca (AZN), the UK’s largest listed business.
Nvidia’s shares are still up more than 124% so far this year, even after the latest fall.
PROBE BACKGROUND
In June, the DoJ and the FTC (Federal Trade Commission) reached a deal to carry out antitrust investigations into Nvidia and fellow AI (artificial intelligence) industry leaders Microsoft (MSFT:NASDAQ) and OpenAI, the firm behind ChatGPT.
US officials are said to be worried by complaints that include how Nvidia has made it difficult for customers to switch chip suppliers. DoJ investigators have also subpoenaed other companies for evidence after initially sending questionnaires about Nvidia’s business practices, Bloomberg reported, citing unnamed people familiar with the matter.
Nvidia and the DoJ have, so far, both declined to comment.
IMPACT ON GROWTH
Nvidia’s growth has been driven by its dominance in the AI chip market, particularly its GPU’s (Graphics Processing Units), which are essential for large language model training because of their superior scope for handling vast quantities of data.
The antitrust probe raises concerns about the company’s business practices, including allegations that it is making it harder for customers to switch to other suppliers and penalising buyers who do not exclusively use its AI chips. If proven, it could lead to regulatory challenges and potential legal action, which could negatively impact Nvidia’s market dominance, ability to expand market share and future growth.
WHAT NOW?
But it’s a big if. Nvidia will put up a strong defence, one that could involve US Government restrictions on its ability to sell in some overseas markets, China in particular. If so, it could open a complex can of worms.
It’s also worth noting that antitrust challenges are par for the course in the technology industry, and they are typically brushed off by analysts and investors with most eventually settled by fines and/or modest remedies before being consigned to history.
It’s impossible to know how this one will play out but what we can say is that the probe into Nvidia adds an extra layer of uncertainty around the company right now, hence the discount the market has applied to the share price.
