Federal Authorities Subject Nvidia AI Deal to Antitrust Scrutiny

A relatively unknown Israeli startup has found itself at the center of a dispute between U.S. regulators and the world’s largest technology companies over the risk of artificial intelligence falling under the control of a handful of giants.

Justice Department lawyers are investigating semiconductor company Nvidia’s acquisition of AI startup Run:ai on antitrust grounds, according to five people with direct knowledge of the matter who were granted anonymity to discuss the confidential investigation. The companies announced the deal in late April without disclosing the price, though TechCrunch reported it at $700 million.

Run:ai — which already had a partnership with Nvidia — enables what’s known as graphics processing unit, or GPU, virtualization, which is why Nvidia has a market value of nearly $3 trillion. Run:ai’s technology essentially lets its customers do more with fewer chips, a highly valuable service as demand for chips far outstrips supply.

Nvidia’s profits have soared over the past few years as its chips, traditionally used in computer graphics, have been adapted to the computationally intensive workloads of artificial intelligence.

The Justice Department’s investigation comes as regulators around the world scrutinize the burgeoning AI industry for issues ranging from existential and national security threats; to potential turbocharged consumer fraud; to civil rights violations and copyright protections for data used in technology that underpins consumer services like OpenAI’s ChatGPT. Central to all of these concerns is the fear that a handful of dominant tech companies will control the market in a way similar to the concentration in e-commerce, social media, and online search and advertising.

In late July, the U.S. Department of Justice and the Federal Trade Commission, the European Commission, and the U.K. Competition and Markets Authority released an unusual joint statement expressing concerns that few companies would have the resources to compete.

“Nvidia wins on merit, as reflected in our benchmark results and customer value. We compete based on decades of investment and innovation, rigorously complying with all laws, making Nvidia available in every cloud and on-premise for every enterprise, and ensuring customers can choose the best solution for them,” said Nvidia spokeswoman Mylene Mangalindan. “We will continue to support early innovators in every industry and market, and we are happy to provide any information regulators need.”

A DOJ spokesman declined to comment. Run:ai did not respond to a request for comment.

In the U.S., both the FTC and DOJ are investigating competition among AI companies, POLITICO previously reported. In June, the two agencies agreed to split their jurisdictions: The DOJ will investigate Nvidia’s business practices, while the FTC will examine whether Microsoft and its partner, OpenAI, have an unfair advantage in the rapidly evolving technology, particularly as it involves large language models.

The problem for Nvidia is its place in the so-called AI stack, which includes high-performance semiconductors, massive cloud computing resources, data to train large language models, software to integrate those components, and consumer applications like ChatGPT. The company’s AI Foundry platform aims to be an end-to-end solution for customers who want to build AI models.

The company is estimated to control as much as 90 percent of the market for advanced AI chips, which are often hard to come by.

Nvidia’s two DOJ investigations — into the Run:ai deal and Nvidia’s business practices — are separate but related, and both are broadly focused on the company’s ability to build a moat around its GPUs, five people with knowledge of the matter said. As part of the broader probe into the company, DOJ investigators have been asking questions about Nvidia’s sales practices, including whether it conditions access to its chips on the purchase of other products or commitments not to buy from competitors, some of the people said.

Some say one possible concern with the Run:ai deal is that Nvidia may have bought a company that enables customers to do more with less computation in order to hide technology that could erode that company’s main source of revenue.

The issue also potentially involves Nvidia software known as CUDA, which developers use to write applications for Nvidia GPUs. The French antitrust agency has raised concerns about the “sector’s dependence on Nvidia’s CUDA programming software (the only one that is 100% compatible with GPUs that have become essential for accelerated computing).” The agency is also investigating Nvidia.

Some customers and competitors have accused Nvidia of using sales tactics that are designed to discourage users from purchasing over other options, as well as bundling pre-owned chips with necessary software, according to people with knowledge of the matter.

The investigation into Run:ai is the latest move by the Biden administration in a broader antitrust effort that helped shift sentiment in Silicon Valley in favor of former President Donald Trump and sparked a backlash against the FTC from Republicans.

The Run:ai investigation is sure to fuel investor concerns that the FTC’s crackdown on mergers and acquisitions is cutting off a key part of the startup ecosystem, where founders and investors rely heavily on acquisitions by larger companies to cash out. In 2021, the FTC and other agencies blocked Nvidia’s acquisition of chip designer Arm. While Arm has had a successful initial public offering, most startups never get that chance.

The FTC is also investigating the cloud computing market and AI investments by Microsoft, Amazon, and Google. In May, the DOJ hosted a day-long workshop at Stanford University on competition and AI. The FTC also recently hosted a workshop on AI.