Nvidia Subpoenaed in Justice Department’s Antitrust Probe

Nvidia, a leading technology company known for its powerful graphics and AI chips, has recently found itself under increased scrutiny from the U.S. Justice Department. According to Bloomberg, the company has been subpoenaed as part of a broad antitrust investigation. This development signals a significant escalation in the probe, which could potentially lead to a formal complaint against Nvidia.

The subpoena, issued by the Justice Department’s San Francisco office, is part of a larger investigation involving several unnamed technology firms. Sources familiar with the matter, who spoke to Bloomberg on condition of anonymity, indicate that the inquiry is primarily focused on Nvidia’s business practices and market dominance.

Central to the investigation is Nvidia’s acquisition of AI management company RunAI, a deal valued at $700 million. Regulators are concerned that this acquisition may further entrench Nvidia’s position in the AI chip market, making it increasingly difficult for competitors and buyers to find alternatives to Nvidia’s products. This concern reflects a broader industry debate about Nvidia’s market power and its potential impact on competition within the chipmaking sector.

Bloomberg reports that antitrust officials suspect Nvidia of engaging in practices that could inhibit competition. Specifically, there are allegations that Nvidia might be making it more challenging for customers to switch to other chip suppliers. Additionally, the company is accused of penalizing those who do not exclusively purchase its AI chips. This alleged behavior is not new; similar concerns have been voiced within the chipmaking industry, as reported by The New York Times.

In response to the subpoena and the ongoing investigation, Nvidia spokesperson John Rizzo has defended the company’s practices. Rizzo emphasized that Nvidia’s merit is demonstrated through its results and the value it provides to its customers. He assured that customers have the freedom to choose solutions that best meet their needs, implying that Nvidia’s market position is a result of competitive success rather than anti-competitive practices.

The timing of the subpoena has had a notable impact on Nvidia’s stock performance. On Tuesday, Nvidia shares closed down by 9.5% at $108 per share, with an additional drop of over 1.5% in after-hours trading. This decline is part of a broader slump that has seen Nvidia’s stock fall nearly 15% over the past five days. This downturn follows the company’s recent earnings report, which, despite setting records, failed to meet the high expectations set by investors. Despite the recent dip, Nvidia’s stock is still significantly higher than its January starting price of $48.17 per share.

Nvidia is not the only tech giant under the Justice Department’s microscope. The investigation also includes scrutiny of Microsoft’s partnership with OpenAI. The focus on Nvidia is part of a wider examination of the competitive dynamics within the technology sector, where Nvidia’s dominant market share in AI chips—estimated to be between 70% and 95%, according to CNBC—has drawn regulatory attention.

The company’s key clients include major tech players such as Microsoft, Meta, Amazon, and Alphabet, Google’s parent company. Microsoft and Meta, in particular, allocate substantial portions of their budgets to Nvidia’s hardware, with reports indicating that these companies dedicate approximately 40% of their budgets to Nvidia’s products. This level of market influence has contributed to the regulatory scrutiny Nvidia is currently facing.

It’s important to note that, as of now, no formal complaint has been filed against Nvidia. The current focus remains on the ongoing investigation and the recent subpoena. Nvidia has faced similar regulatory challenges in the past; notably, in 2006, the company dealt with Justice Department subpoenas related to an antitrust investigation into its graphics chips.

The outcome of this investigation could have significant implications for Nvidia and the broader tech industry. As regulators continue to examine Nvidia’s market practices and business strategies, the company’s response and the eventual findings of the investigation will be closely watched by industry stakeholders and investors alike. The broader context of this scrutiny highlights ongoing concerns about competition and market power within the technology sector, underscoring the importance of regulatory oversight in maintaining a competitive marketplace.