What is driving Nvidia’s stock down 2.55%: Clues point to China

Nvidia is under investigation by Chinese regulators for possible violations of antimonopoly laws, following the U.S. government’s announcement of new export controls targeting China’s chip industry. The State Administration for Market Regulation is examining Nvidia’s $6.9 billion acquisition of Mellanox Technologies as part of the probe.

Nvidia faces antitrust investigation in China amid U.S. tensions

China’s investigation emerges amid heightened tensions between the U.S. and China regarding technology and trade. The scrutiny over Nvidia’s practices aligns with the recent actions of the U.S. Department of Justice, which is reportedly conducting its own investigation into Nvidia for alleged abuses of its market dominance. This includes claims that Nvidia has threatened to penalize customers engaging with both its products and those of its competitors.

Nvidia, a major player in the AI chip market with a valuation exceeding $3.4 trillion, has seen its shares drop 2.55% following news of this investigation. Despite the decline, Nvidia’s stock has surged by approximately 180% this year, reflecting robust demand for its advanced chips among tech giants. The company derives about 15% of its revenue from China, making its market presence significant despite ongoing restrictions and scrutiny.

The Chinese government has not detailed the investigation’s ramifications, leaving analysts to speculate on its potential impact. Ian Chong, a political scientist in Singapore, indicated that the probe serves as a symbolic gesture rather than a substantial threat to Nvidia, as the company is already limited in its operations within China. China’s recent steps, including a ban on the export of critical materials like gallium and germanium to the U.S., illustrate a tit-for-tat exchange in trade relations.

Details of the investigation

The investigation appears to be aimed at Nvidia’s earlier acquisition of Mellanox Technologies, approved under stringent conditions that required nondiscriminatory treatment of Chinese suppliers. Since the approval in 2020, Nvidia has faced growing market scrutiny due to its dominance in AI chip production, which is a focal point of technology competitions between the two powers.

A spokesperson for Nvidia expressed willingness to cooperate with regulators, stating, “We are happy to answer any questions regulators may have about our business.” In the latest quarterly earnings report, Nvidia announced a revenue of $35.08 billion for the period, a substantial increase from the previous year.

Alongside its China strategy, Nvidia has been actively navigating U.S. export controls. Reports suggest the company plans to partner with Chinese firm Inspur to deliver a new AI chip specifically intended for the Chinese market by mid-2025. This arrangement may provide Nvidia with a way to maintain its business interests in China despite the ongoing scrutiny from both U.S. and Chinese regulators.

Nvidia is not the sole target of regulatory scrutiny in this complex international landscape. Other U.S. companies, such as Intel, have faced similar investigations. In October, China’s Cybersecurity Association called for a security review of Intel products, raising concerns related to potential surveillance. Additionally, U.S. regulators previously restricted Micron Technology from operating in critical sectors following a security review that found compliance issues.

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David Bieri, an international finance expert, noted that the investigation may symbolize a warning to the incoming Trump administration about China’s capabilities in retaliating against perceived injustices in trade relations. The situation highlights the intricate entanglements of U.S. corporations with Chinese markets and underscores the potential political risks involved in cross-border business activities.

Investors and market observers will be keenly watching how this situation develops, especially regarding the implications for Nvidia’s operations in China and its overall business strategy. Future steps taken by both the U.S. and Chinese governments may further exacerbate tensions and influence the direction of international tech markets. Current investigations are ongoing, leaving uncertainty regarding how these latest developments will unfold for Nvidia and the broader semiconductor industry.

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Featured image credit: Nvidia