In the first trading day of September, Nvidia’s (NVDA.US) stock took a severe hit, closing down 9.5%, with the largest market capitalization drop for a US stock. Since the company’s earnings report was released last Wednesday, Nvidia’s stock has already fallen 14%. Different interpretations of the market exist, with some analysts suggesting that Nvidia is digesting the pains of growth, and seeing its future prospects as promising. However, others argue that Nvidia’s earnings report has sparked concerns about the sustainability of its significant investment in AI hardware.
Antitrust Scrutiny Intensifies on Nvidia
On September 3rd, US Eastern time, following the opening of the US stock market, the Department of Justice (DOJ) issued summonses to Nvidia and other companies, seeking evidence of potential antitrust violations by the company’s primary supplier of artificial intelligence processors. This marks a further escalation in the investigation of Nvidia.
Sources familiar with the investigation have revealed that the DOJ had already issued questionnaires to companies prior to this action, and now they are requesting information from the companies in a legally binding manner. This step brings the government closer to formally filing a lawsuit.
The DOJ is concerned that Nvidia might make it more difficult for suppliers to switch to alternatives and impose penalties on buyers who do not exclusively use its artificial intelligence chips. The identity of these sources is kept confidential due to the private nature of the discussions.
On Tuesday, Nvidia’s stock price fell 9.5%, marking a new low since August 9th. The stock’s plummet caused Nvidia’s market value to shrink by approximately $278.9 billion in a single day, a record that surpasses Meta’s previous high for the largest single-day market value loss on US stocks. After the news of the summonses, Nvidia’s stock continued to decline in the closing hours. Despite this, Nvidia’s stock has still risen by over 100% this year, thanks to explosive growth in sales.
As part of the investigation, Bloomberg reported in June that investigators have been contacting other tech companies to gather information. It’s noted that the US Department of Justice’s San Francisco office is leading the investigation. A representative from the DOJ declined to comment.
In response to questions regarding the investigation, Nvidia stated that its market dominance is based on the quality of its products, which offer faster performance.
In an email statement, Nvidia said, We have earned our market position through our product quality, as reflected in our benchmark results and value to our customers, who have the freedom to choose the solutions that best suit their needs.
Since becoming the world’s largest semiconductor manufacturer and a major beneficiary of the AI spending boom, Nvidia has been under close scrutiny by regulators. Its sales have more than doubled every quarter, surpassing industry leaders like Intel.
In the DOJ’s investigation, regulators are looking into Nvidia’s acquisition of RunAI, which was announced in April. RunAI produces software for managing AI computing, and concerns are raised about the cooperation potentially making it harder for customers to switch away from Nvidia’s chips. The regulators are also asking whether Nvidia offers preferential supplies and pricing to customers who exclusively use its technology or purchase its entire system.
Nvidia was founded in 1993, originally known for selling graphics cards to gamers. However, its chip-making technology proved highly useful for building AI models, which involve extensive software training with large amounts of data. The company has since rapidly expanded its product line, introducing a range of software, servers, networks, and services to accelerate AI deployment.
Nvidia CEO Jensen Huang prioritizes customers who can immediately utilize the company’s products in their on-premises data centers, aiming to prevent stockpiling and accelerate the widespread adoption of AI.
Nvidia’s success, coupled with the challenge faced by competitors in launching alternative chips, has made Nvidia a critical part of the supply chain for some of the world’s largest companies. For example, Microsoft (MSFT.US) and Meta Platforms Inc. (META.US) allocate over 40% of their hardware budget to purchasing Nvidia’s devices. During periods of tight supply for Nvidia’s H100 accelerator, individual components could fetch up to $900,000 at retail.
Analysts predict that Nvidia’s revenue for 2024 will reach $120.8 billion, significantly higher than $16 billion in 2020, with most of the income coming from the data center sector. In fact, Nvidia’s profits for this year are expected to exceed the total sales of its closest competitor, AMD.
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