Shares of Nvidia fell Monday after China said it is investigating the high-flying U.S. microchip company over suspected violations of Chinese anti-monopoly laws.
In a brief news 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.
Nvidia shares fell 2.6% Monday. They are still up 180% so far this year.
Considered a bellwether for artificial intelligence demand, Nvidia has led the AI sector to become one of the stock market’s biggest companies, as tech giants spend heavily on the company’s chips and data centers needed to train and operate their AI systems.
Nvidia’s shares have surged this year along with the California company’s revenue and profit due to AI demand. According to data firm FactSet, about 16% of Nvidia’s revenue comes from China, second only to its U.S.-generated revenue.
A spokesperson for the company based in Santa Clara, California, 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 ago. Nvidia earned $19.31 billion in the quarter, more than double the $9.24 billion it posted in last year’s third quarter. The earnings release did not break out revenue from China.
The company’s market value rocketed to $3.5 trillion recently, passing Microsoft and briefly overtaking 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. Justice Department was investigating complaints from rivals that Nvidia was abusing its market dominance in the chip sector. The allegations reported include Nvidia threatening to punish those who buy products from both itself and its competitors at the same time.
David Bieri, an international finance expert at Virginia Tech, said that China’s investigation is “not 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 of future relations.
The Chinese government, he said, is telling the U.S. “don’t mess with us, because all of your darling corporations that your version of capitalism needs to prosper have entanglements” with China.
Nvidia will have to revise its strategy in China or come up with provisions in their budgets for the type of uncertainty business with China will bring, Bieri said.