Shares of Nvidia dropped 2.6% on Monday after Chinese authorities announced an investigation into the U.S. microchip giant over potential violations of anti-monopoly laws. The investigation seems to focus on Nvidia’s $6.9 billion acquisition of Mellanox, a network and data transmission company, in 2019.
Despite the decline, Nvidia’s stock has risen 180% this year, making it one of the most valuable companies in the stock market, driven largely by strong demand for its chips and data centers, essential for artificial intelligence (AI) systems. Nvidia’s revenue has surged alongside its stock price, with about 16% of its income coming from China, second only to the U.S.
In a statement, Nvidia expressed willingness to cooperate with regulators and address any questions they may have regarding the company’s operations. In its latest earnings report, Nvidia posted a 94% increase in revenue, totaling $35.08 billion, and a significant jump in profits to $19.31 billion.
Nvidia has become a bellwether for AI demand, with tech giants heavily investing in its products. Recently, its market value briefly surpassed Apple, reaching $3.5 trillion.
This investigation by China follows a report earlier this year that the U.S. Justice Department was examining Nvidia for potentially abusing its market dominance. Allegations include Nvidia threatening to penalize customers who purchase products from both Nvidia and its competitors.
David Bieri, an international finance expert at Virginia Tech, suggested that the Chinese investigation is less about Nvidia’s operations in China and more a message to the incoming U.S. administration, signaling the potential risks of antagonizing China, given the deep ties of American corporations to the country.
Bieri emphasized that Nvidia may need to adapt its strategy in China, factoring in the uncertainty of doing business in the region. He expressed confidence in Nvidia’s management to handle political risks alongside market and operational risks.
Nvidia, known for inventing graphics processor units (GPUs) in 1999, has become a leader in the tech industry, reshaping the gaming and computer graphics markets. Last month, Nvidia replaced Intel on the Dow Jones Industrial Average, ending Intel’s 25-year tenure on the index. Unlike Intel, Nvidia designs its chips but outsources manufacturing to Taiwan Semiconductor Manufacturing Co., a key competitor of Intel.
