The State Administration for Market Regulation has launched a probe into Nvidia's recent activities and the conditions surrounding its purchase of Mellanox Technologies Ltd., as stated by the government on Monday. Approval for the acquisition was granted by Beijing four years ago, contingent upon Nvidia not engaging in discriminatory practices against Chinese firms.
This action against Nvidia represents Beijing's response to increasing US technology restrictions, occurring just a week after China prohibited the export of various materials with technological and military uses. Nvidia's market capitalization has surged this year due to heightened demand for chips capable of supporting artificial intelligence applications, positioning it as one of the most valuable publicly traded companies and a significant target in the ongoing tech trade conflict with China.
In response, Nvidia expressed its willingness to address any inquiries from regulators regarding its operations. The company stated, "Nvidia succeeds based on merit, as demonstrated by our benchmark results and the value we provide to customers, who can select the best solutions for their needs." Nvidia emphasized its commitment to delivering high-quality products across all regions and adhering to its obligations in every market.
China had previously approved Nvidia's $7 billion acquisition of Mellanox in 2020, with the requirement that the Israeli networking equipment manufacturer share information about new products with competitors within 90 days of their release to Nvidia.
According to its latest financial report, Nvidia derives approximately 15% of its revenue from Chinese customers. On Monday, Nvidia's shares dropped by as much as 3.7% to $137.13 during trading in New York, despite having risen 188% this year up to the end of last week.
Washington has aimed to impede China's progress in advanced chip technology by prohibiting Nvidia from selling its most sophisticated semiconductors to Chinese firms. Additionally, the United States has encouraged its allies to adopt similar restrictions.
The Biden administration has exerted pressure on the Dutch government to stop ASML Holding NV, which holds a monopoly on the machinery required for producing the most advanced chips, from not only selling its top-tier equipment to China but also from providing repair and maintenance services.
These export limitations have provoked strong criticism from Beijing, which has retaliated against American companies. Micron Technology Inc. cautioned last year that approximately half of its sales linked to clients based in China could be impacted by a cybersecurity investigation initiated by the Chinese government. The Chinese cybersecurity authority stated that Micron's products did not pass their review and consequently prohibited the company's chips from being used in "critical infrastructure."
Despite these challenges, Nvidia's leading position in the AI-chip sector has come under scrutiny both domestically and internationally. The company's graphics processing units, originally popularized by video gaming, have become crucial for new systems designed to train large language models and other AI applications. While companies like Amazon.com Inc. are attempting to reduce Nvidia's market dominance, the current overwhelming demand for these chips has resulted in prices reaching tens of thousands of dollars each, with supply remaining limited.
Earlier this year, the US Justice Department sought information regarding potential antitrust violations by Nvidia, as reported by Bloomberg News. Antitrust officials expressed concerns that Nvidia was creating barriers for customers wishing to switch to alternative suppliers and was penalizing those who did not exclusively utilize its AI chips, according to sources familiar with the situation.
France initiated an investigation into Nvidia last year, focusing on the chips utilized in artificial intelligence. Benoit Coeure, the head of France's antitrust agency, indicated during a July press conference that the company could potentially confront antitrust charges in the future. Additionally, the European Union launched a preliminary investigation in 2023 to assess claims of anticompetitive practices related to AI chips.