Nvidia Shares Plummet Amid US Justice Department Investigation

Nvidia shares recorded their largest single-day drop in history amid a US Justice Department investigation into potential antitrust violations.

Authorities have issued subpoenas to Nvidia and other companies to scrutinise the chipmaker’s operations, reports Bloomberg.

According to the agency, the Justice Department had previously sent questionnaires to companies and is now issuing legal requests obliging recipients to provide information. This marks the government’s next step towards initiating a formal investigation.

Bloomberg notes that antitrust authorities are concerned about Nvidia’s actions to prevent partners from switching to other suppliers and penalising customers who do not exclusively use the company’s chips.

The company’s shares fell by 9.53% during Tuesday’s trading session even before the investigation news, with its market capitalisation dropping by $279 billion. Following the release of the investigation details, the shares declined an additional 2.41% in after-hours trading.

Shares of other chip manufacturers also fell:

• Intel — down 8%;
• Marvell — down 8.2%;
• Broadcom — down 6%;
• AMD — down 7.8%;
• Qualcomm — down 7%.

The VanEck Semiconductor ETF (SMH), which tracks the semiconductor industry, fell by 7.5%. This marks the worst day since March 2020.

Shares of Asian semiconductor and equipment manufacturers such as SK Hynix, Taiwan Semiconductor Manufacturing, and Advantest also declined.

In June, Nvidia became the world’s most valuable company with a market capitalisation of approximately $3.34 trillion. The firm’s current valuation stands at $2.65 trillion. The company’s chips are in high demand amid the AI boom. In early September, Elon Musk announced the creation of the Colossus AI training cluster using 100,000 H100 graphics processors.

By various estimates, Nvidia holds over 80% of the AI chip market. The company’s revenue grew by more than 200% for three consecutive quarters. Recently, the growth rate has slowed.

In response to questions about the investigation, Nvidia stated that its market dominance is due to the quality of its products, which deliver higher performance.

“Nvidia wins on its merits, as reflected in our benchmark results, and the value to customers who can choose any solution that best suits them,” the company said in a statement emailed to Bloomberg.

As part of the investigation, the Justice Department is examining the acquisition of AI software maker RunAI, which the chipmaker completed in April. The regulator is also investigating whether Nvidia offers preferential pricing to customers who exclusively use its technology.

Earlier in August, hedge fund Elliott Management claimed that Nvidia is “in a bubble,” and the AI technology underpinning the company’s stock price is “overvalued.”