AI chip leader Nvidia’s high market share draws federal prosecutors’ attention

Reports that the DOJ had sent subpoenas to a leading maker of graphics processing units for data centers, the hardware that powers much of AI, have been denied by Nvidia. But given that the government previously sent out questionnaires, an investigation is certainly underway.

Reports indicate the Justice Department is concerned that the company is using its strong market position to make it harder for existing customers to switch to other providers and is acting illegally by offering lower prices to customers who only use Nvidia products, a practice known as exclusionary discounting.

Nvidia was founded in 1993 by engineers Chris Malachowsky, Curtis Priem, and Jensen Huang at a Silicon Valley Denny’s, the same chain where Huang had bused and waited tables as a teenager growing up in Oregon. The three men sought to enable realistic 3D graphics by adding a specialized graphics unit to personal computers. That product hit the market in 1999 and was used by game makers like Sega. Their GPUs evolved as Nvidia focused on AI applications, eventually creating a platform that provided both hardware and software.

As big tech players began investing in machine learning, which powers AI, Nvidia found itself with the right technology at the right time. Today, Amazon, Google, Meta, Microsoft and Oracle all use Nvidia chips, and the company boasts trillion-dollar market caps.

Demand for their products has risen along with the company’s valuation. Nvidia’s stock price has more than doubled this year. The company predicts there won’t be enough supply to meet demand for their latest generation of chips, which are due to ship this year and are codenamed Blackwell.

This intense demand for AI chips in the market, coupled with Nvidia’s unique ability to deliver on it, is causing concern among U.S. regulators. Having a large market share, or even a monopoly, is not in itself illegal under U.S. antitrust law. But acting illegally to maintain that monopoly is the charge Nvidia is now facing.

But Adam Thierer, a senior research fellow at the R Street Institute, disagrees with the scrutiny directed at Nvidia. He said Washington Examiner“In a better world, the White House would be hanging a medal around Jensen Huang’s neck and praising Nvidia for helping to drive the AI ​​revolution and record stock market gains.”

Thierer then criticized the Justice Department under the Biden administration.

“But in Biden’s world, such success and global market leadership apparently earns you only condemnation and harassment from antitrust officials,” he said. “China must be smiling as U.S. officials clamp down on our best companies in this way.”

Concerned that mergers and acquisitions could also be problematic, the DOJ is investigating Nvidia’s plans to buy Run:ai, a smaller company that helps boost the performance of AI chip clusters. Both U.S. antitrust regulators, the DOJ and the Federal Trade Commission, have tightened merger scrutiny across a range of industries during the Biden administration.

The Justice Department raised concerns about AI’s role in so-called algorithmic collusion when it filed a lawsuit this summer against RealPage, Inc., a vendor of software that helps landlords set housing prices. In a statement, the Justice Department said the AI-based service was “an illegal scheme to reduce competition among landlords in housing prices” and that “RealPage’s alleged conduct deprives tenants of the benefits of competition in housing conditions and harms millions of Americans.” The lawsuit was filed in the United States District Court for the Middle District of North Carolina.

The FTC, meanwhile, is looking into AI activity in yet another context, investigating tech giants like Microsoft, Google and Amazon, which are gaining an illegal advantage in emerging technology by investing heavily in the most promising AI startups.

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It’s unclear what the next administration, led by Vice President Kamala Harris, the Democratic nominee in 2024, or her Republican rival, former President Donald Trump, will mean for the future of heightened antitrust scrutiny of the AI ​​industry. Both candidates have been critical of Big Tech in the past, albeit for different reasons, but the global race for AI supremacy with China looms large in policy circles and political considerations.

Critics of the latest moves by the Justice Department and FTC say they make little sense as China continues to seek to fill funding gaps for domestic AI companies with state capital and financial aid.