Shares of Nvidia fell on Monday after China said it is investigating the high-end microchip company over alleged violations of Chinese antitrust laws.
In a brief press release with few details, Chinese regulators appear to be focusing on Nvidia’s $6.9 billion acquisition of network and data transmission company Mellanox in 2019.
Shares of Nvidia fell 2.6% to $138.81 on Monday. They are still up 180% so far this year.
Considered a haven for artificial intelligence demand, Nvidia has made the AI sector one of the stock market’s biggest companies as the tech giants spend heavily on the company’s chips and data centers needed to train and operate their own AI systems.
Shares of Nvidia have soared this year as the California company’s revenue and profits rise on the back of demand for AI. According to data firm FactSet, about 16% of Nvidia’s revenue comes from China, second only to its US-generated revenue.
A spokesman for the Santa Clara, California-based company said in an emailed statement that Nvidia is “happy to answer any questions regulators may have about our business.”
In its most recent earnings release, Nvidia posted revenue of $35.08 billion, up 94% from $18.12 billion a year earlier. Nvidia earned $19.31 billion in the quarter, more than double the $9.24 billion it posted in the third quarter last year. The earnings release did not break out earnings from China.
The company’s market value soared to $3.5 trillion recently, overtaking Microsoft and briefly overtaking Apple as the world’s most valuable company.
China’s antitrust probe follows a report this summer by tech news site The Information that the Justice Department was investigating complaints from rivals that Nvidia was abusing its market dominance in the chip sector.
The reported allegations include Nvidia threatening to punish those who buy products from both it and its competitors at the same time.
David Bieri, an international finance expert at Virginia Tech, said the China investigation “isn’t about what Nvidia is doing in China, per se,” but rather a signal to the incoming Trump administration. China, Bieri said, is looking to set the tone for future relations.
The Chinese government, he said, is telling the US “don’t mess with us because all your beloved corporations that your version of capitalism needs to thrive are messing” with China.
Nvidia will have to review its China strategy or make provisions in its budgets for the kind of uncertainty that doing business with China will bring, Bieri said.
“I don’t think it’s something they can get away with,” he said. “I also have tremendous faith in the brilliance of the management strategy of a corporation like Nvidia to pay attention not only to credit risk, market risk and operational risk, but also to political risk.”
Nvidia’s invention of graphics processor chips, or GPUs, in 1999 helped fuel the growth of the PC gaming market and redefine computer graphics.
Last month, the Santa Clara, California-based tech giant replaced Intel in the Dow Jones Industrial Average, ending the pioneer semiconductor company’s 25-year run in the index.
Unlike Intel, Nvidia designs but does not manufacture its chips, relying heavily on Taiwan Semiconductor Manufacturing Co., an Intel rival.
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