Details of the antitrust investigation against NVIDIA and the reality of its market dominance.

September 4, 2024

The antitrust investigation by the U.S. Department of Justice into NVIDIA, which boasts a dominant position in the AI chip market, has entered a new phase. The company has received a legally binding subpoena and is facing allegations of abusing its market dominance, as reported by Bloomberg. This development has the potential to have a significant impact on NVIDIA's business strategy at the heart of the AI boom, causing ripples throughout the industry.

The U.S. Department of Justice has sent a subpoena to NVIDIA and its related companies. According to Bloomberg, this subpoena is the next step following the previously sent questionnaire and legally requires NVIDIA to provide the necessary information for the investigation. This indicates that the investigation has moved beyond the preliminary stage and entered a more serious phase.

It is estimated that NVIDIA currently holds over 80% market share in the AI chip market for data centers. The source of this overwhelming market dominance is said to be the general-purpose parallel computing platform for GPUs called CUDA, which the company developed about 10 years ago. CUDA has become an important tool for engineers training advanced AI models like ChatGPT and has effectively become the industry standard.
Furthermore, NVIDIA aims to position itself as an "AI factory" that provides not only AI accelerators but also training software for AI models and optimization services for data center designs. This vertical integration strategy is also being investigated for its potential to make it difficult for competing companies to enter the market.

The impact of this investigation is already evident in NVIDIA's stock price. On September 4, 2023, when the investigation details were reported, NVIDIA's stock price fell by approximately 10%, resulting in a market capitalization loss of around 278 billion dollars (about 41 trillion yen) in a single day. This is the largest single-day market capitalization loss by a listed company.
This development is not only a concern for NVIDIA but also for the AI chip market as a whole. NVIDIA's major customers include major technology companies such as Microsoft, Alphabet, Meta, Amazon, and Tesla, and it could potentially impact their AI strategies as well.
However, for competing companies such as AMD and Intel, this investigation could be an opportunity for market share expansion. Nevertheless, NVIDIA's technological advantage remains strong, and there is a strong belief that short-term changes in the market structure will be difficult.

NVIDIA's spokesperson claims that NVIDIA is winning based on product performance and value to customers, stating that customers are free to choose the best solution for themselves. However, some industry experts express concerns that NVIDIA's ecosystem is too strong and effectively limits customer choices.

This survey indicates that US regulatory authorities are beginning to take a stricter stance on the AI industry. The Department of Justice and the Federal Trade Commission (FTC) agreed to share roles in the investigation of AI-related companies in August 2023. The Department of Justice is responsible for NVIDIA, and the FTC is responsible for the investigation of Microsoft and OpenAI.
In addition, in April 2023, the Department of Justice also conducted an investigation into NVIDIA's acquisition of Run:ai. There are suspicions that this acquisition was intended to 'bury' technology that could potentially threaten NVIDIA's main source of revenue.

At this point, the investigation has not resulted in any formal charges, but depending on future developments, there is a possibility of significant changes to NVIDIA's business model. In the worst case scenario, they may be required to undergo corporate restructuring or sell off certain business divisions.
On the other hand, the role that NVIDIA's technology has played in the development of the AI industry cannot be ignored. Regulatory authorities need to strike a difficult balance between ensuring a fair competitive environment and not hindering innovation.
Among industry experts, there is also a view that this investigation may promote healthy competition in the AI chip market and accelerate innovation in the long run. However, in the short term, it is also pointed out that NVIDIA's dominance is likely to continue.
The future progress and conclusions of the Department of Justice investigation will be a crucial factor that will shape the overall future of the AI industry. There needs to be careful discussion within the industry about the impact of NVIDIA's monopolistic position on the development of AI technology. At the same time, this situation may serve as an important precedent for how regulations on the rapid development of AI technology should be approached.

Bloomberg: Nvidia Gets DOJ Subpoena in Escalating Antitrust Probe