Nvidia faces probe in China as AI battle between US, China intensifies

China has initiated an antitrust investigation into Nvidia, the world’s largest provider of processors that power artificial intelligence (AI). The probe follows concerns raised by the Chinese government over Nvidia's 2020 acquisition of Israeli networking company Mellanox, which authorities suggest could breach China’s anti-monopoly laws. However, details on how the merger might have violated these laws remain unclear, as reported by Chinese state media on Monday.

Nvidia's stock, which has seen a nearly 200% increase in value this year due to the AI boom, dropped less than 2% in premarket trading following the news. The company, valued at over $3 trillion, is second only to Apple in market capitalisation.

US-China chip war intensifies

The investigation is the latest escalation in the ongoing battle between the US and China for dominance in the AI sector, a field both nations consider crucial for national security. This comes just days after the Biden administration imposed further restrictions on the sale of high-tech memory chips to China. Although Nvidia primarily manufactures graphics processors, these restrictions highlight the increasing importance of AI and the technologies that support it.

These new export controls are part of the third round of chip sales restrictions by the US, which aims to slow China’s development of AI chips. The US government fears that China could use advancements in AI for military purposes. Senior officials at the US Commerce Department have stated that the measures are designed to curb China’s technological progress in the sector, with industry experts predicting that the plan will be effective.

In response, China’s Commerce Ministry condemned the US restrictions, labelling them a "significant threat" to the stability of global supply chains. Last week, China retaliated by imposing a ban on the sale of critical materials, such as germanium and gallium, which are essential for chip manufacturing. While China had previously restricted these materials, it has now closed any loopholes that allowed for continued sales.

Domestic efforts to strengthen AI capabilities

The US-China rivalry has also seen accusations from senior US officials that China has stolen American-made AI software, which Beijing has denied. The Nvidia investigation marks a significant step in this tech conflict, with Nvidia being a key player in the global AI revolution. Any disruption to Nvidia's operations could have far-reaching consequences for the company’s global ambitions.

In addition to limiting chip and material sales, both nations are striving to enhance their domestic chip manufacturing capabilities. Through the CHIPS Act, the Biden administration has invested billions of dollars into companies like Intel to reduce reliance on foreign technologies. Meanwhile, China has launched a $47.5 billion state investment fund aimed at bolstering its semiconductor industry, marking the country’s largest-ever initiative in the sector.

Nvidia under scrutiny in the US

In a further complication for the American chipmaker, Nvidia is also facing antitrust scrutiny in the United States, according to Bloomberg. As the chip war between the US and China intensifies, the stakes for Nvidia and other technology companies have never been higher.