Nvidia Hit by China Antitrust Investigation, Shares Drop 2%

Nvidia shares dropped nearly 2% in pre-market trading, after China's State Administration for Market Regulation (SAMR) announced an antitrust investigation. The probe centers on allegations that Nvidia violated China's Antitrust Law and conditions set during its 2020 acquisition of Mellanox Technologies.

In April 2020, Nvidia received regulatory approval from China to acquire Mellanox, but with restrictive conditions to address concerns about anti-competitive behavior. These included prohibitions on bundling Nvidia GPUs with Mellanox networking products, imposing unreasonable transaction conditions, or restricting standalone purchases. The requirements also mandated fair, reasonable, and non-discriminatory access to Nvidia and Mellanox products in China and ensured interoperability with third-party equipment.

The SAMR's investigation highlights potential violations of these conditions, especially given U.S. restrictions on exporting advanced GPUs to China, which may have limited Mellanox product availability, contravening China's stipulated rules.

Why the Investigation Matters

Geopolitical tensions between the U.S. and China have heightened scrutiny of Nvidia's operations in China. Advanced Nvidia GPUs are already restricted from export to China due to U.S. policies, and Mellanox products have also faced similar challenges. These developments appear to have prompted the SAMR to act.

Financial Impact on Nvidia

China, including Hong Kong, accounted for $5.416 billion—or 15%—of Nvidia's total revenue in its latest fiscal quarter (July 28–October 27, 2024). Under Chinese antitrust law, penalties for violations can range from 1% to 10% of a company's sales within the country. For Nvidia, this could mean a fine as high as $540 million.

Worse yet, if tensions escalate and Nvidia fails to comply with the investigation's outcomes, it could face the drastic scenario of being barred from the Chinese market—a significant revenue loss.

Conclusion: High Stakes for Nvidia

China's antitrust investigation underscores the geopolitical and regulatory pressures Nvidia faces as it navigates its global operations. While the fine itself may be manageable for a company of Nvidia's size, the potential loss of access to the Chinese market could have severe long-term implications for its revenue and market share. Investors and industry watchers will be closely monitoring developments, as the outcome of this case could set a significant precedent for foreign companies operating in China.