Nvidia’s stock slumps after China launches violation probe

Nvidia’s shares slumped by around 2.2% in pre-market trading on Monday after China opened a probe into alleged violations of the country’s anti-monopoly rules. 

It was announced that Beijing’s market regulation office had commenced an investigation into the market-leading advanced chip manufacturer over its acquisition of Mellanox in 2020. 

China previously approved this deal on the basis that it would not lead to discriminatory treatment toward Chinese companies.

The development comes amid rising trade tensions between the United States and China, with tit-for-tat moves over the last week. President Biden’s administration approved another round of restrictions to stifle China’s access to crucial AI components and in reciprocation, it banned the export of gallium, germanium, and antimony to the U.S.

In a statement quoted by CNBC, a spokesperson explained the decision to investigate the U.S. chipmaker.

“In recent days, due to Nvidia’s suspected violation of China’s anti-monopoly law and the State Administration for Market Regulation’s restrictive conditions around Nvidia’s acquisition of Mellanox shares … the State Administration for Market Regulation is opening a probe into Nvidia in accordance with law.”

China's $NVDA anti-trust probe is a result of the chipmaker's potential breach of commitments made when it acquired Israel-based Mellanox Technologies to solidify Nvidia's dominance in data center related, high-speed network interconnect equipment. It shows that China can dig…

— Brian Tycangco 鄭彥渊 (@BrianTycangco) December 9, 2024

In a further return salvo against America, four of China’s top industry organizations issued a rare unified message in the name of protectionism, warning U.S. chips were “no longer safe” and to buy from local sources instead.

Nvidia is thought to dominate the Chinese market with a share of around 90%, before these curb measures, while China represents around 17% of Nvidia’s revenues in the year up to the end of January. This has fallen from 26% in two years. 

Huawei is emerging as a key competitor for Nvidia in China, with a growing domestic appeal. 

Reuters reported the last foreign company to fall foul of a similar anti-monopoly sanction was Qualcomm, in a 2013 investigation. 

Its local subsidiary firm was found to have overcharged and abused its market position, resulting in the payment of a $975 million penalty, the largest of its kind to be enforced by China at the time.

Image credit: Via Midjourney

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