Nvidia shares fell on Monday after China said it was investigating the high-flying U.S. chip company for alleged violations of Chinese anti-monopoly laws.
In a brief press release with few details, Chinese regulators appear to be focusing on Nvidia’s acquisition of networking and data company Mellanox for $6.9 billion in 2019.
Nvidia shares fell 2.6% on Monday. They are up another 180% this year.
Considered an indicator of demand for artificial intelligence, Nvidia has led the AI sector to become one of the leaders in the stock market. the biggest companiesas tech giants spend heavily on the chips and enterprise data centers needed to train and operate their AI systems.
Nvidia shares have surged this year, along with the California company’s revenue and profits, due to demand for AI. According to data firm FactSet, about 16% of Nvidia’s revenue comes from China, second only to its revenue generated in the United States.
A spokesperson for the Santa Clara, Calif.-based company said in an emailed statement that Nvidia was “happy to answer any questions regulators may have about our business.”
In his most recent earnings As reported, Nvidia reported revenue of $35.08 billion, up 94% from $18.12 billion a year ago. Nvidia earned $19.31 billion in the quarter, more than double the $9.24 billion it reported in the third quarter of last year. The results release did not break down revenue from China.
The company’s market value recently soared to $3.5 trillion, surpassing Microsoft and briefly surpassing Apple as the world’s most valuable company.
China’s antitrust investigation follows a report this summer by technology news site The Information that the U.S. Department of Justice was investigating complaints from competitors that Nvidia abused its dominant position in the market in the chip sector. Reported allegations include Nvidia threatening to punish those who buy products from both it and its competitors.
David Bieri, an international finance expert at Virginia Tech, said China’s investigation “is not about what Nvidia is doing in China per se” but rather a signal to the new Trump administration. China, Bieri said, is seeking to set the tone for its future relations.
The Chinese government, he said, is telling the United States “don’t mess with us, because all of your beloved companies that your version of capitalism needs to thrive have ties” to China.
Nvidia will need to revise its China strategy or make allowances in its budgets for the type of uncertainty that doing business with China will bring, Bieri said.
“I don’t think it’s something they can get rid of,” he said. “I also have enormous confidence in the brilliance of the management strategy of a company like Nvidia, which is not only paying attention to credit risk, market risk and operational risk, but also political risk. “
Nvidia’s invention of graphics processing unit, or GPU, chips in 1999 helped drive the growth of the PC gaming market and redefine computer graphics.
Last month he replaced Intel on the Dow Jones Industrial Average, ending the pioneering semiconductor company’s 25-year presence on the index.
Unlike Intel, Nvidia designs but does not manufacture its own chips, relying heavily on Taiwan Semiconductor Manufacturing Co., an Intel rival.
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Associated Press Technology Writer Sarah Parvini in Los Angeles contributed to this report.