Does Nvidia have a monopoly in datacenter GPUs? Factually, yes, because it has more than 90% of that market. Mind you, it’s not illegal to hold a monopoly; it’s illegal to use monopoly power to harm customers, stifle competition or limit innovation. Is Nvidia doing any of that? Not as far as I know—but the U.S. Government seems to be embarked on a multiyear journey to find out.
Two things I want to point out before we go any further: (1) Nvidia is a client of my firm, as are many of its competitors and customers. (2) I am not a lawyer, though I have more than my share of experience with antitrust actions. I was a key witness in AMD v. Intel (2005), FTC v. Intel (2009) and EU v. Intel (2009). As part of that experience, I had the “fun” of being deposed on-camera by Intel lawyers for a total of 24 hours, the maximum allowed under Texas law. Later, I was also active in two different antitrust cases involving Qualcomm and Apple. So I’ve been around the block a few times when it comes to antitrust. Let’s dig in.
Targeting Nvidia For Antitrust Investigation Was Probably Inevitable
My level of surprise was zero when Bloomberg reported that the U.S. Department of Justice is ramping up an antitrust probe of Nvidia. Whenever any company holds such a dominant position in a vital sector—in this case, the most important part of the AI market—it’s bound to set off alarm bells with competitors, customers, regulators, you name it.
That’s why it’s not really relevant if Nvidia hasn’t received formal subpoenas yet. We’ve known for months that Nvidia is on the very short list of AI companies that the feds are looking into. In fact, I fully expect the DOJ’s action to be followed by similar probes in other jurisdictions, including the EU, South Korea and Taiwan (though likely not China).
More than that, I’ve watched very closely, and with more than a little skepticism, as FTC chief Lina Khan has spearheaded a more aggressive approach to antitrust behavior—or even the possibility of antitrust behavior—that has taken the idea of “pre-crime” to new levels in this area of the law. In other words, it’s not what you’ve done, but what you could do.
What Is Nvidia Suspected Of Doing Wrong?
So what has Nvidia supposedly done in this instance? According to the Bloomberg report, the government thinks Nvidia may be making it hard for customers to switch to other vendors, and punishing customers that use other vendors’ chips—possibly by giving better pricing to those who use Nvidia’s chips exclusively.
Forcible vendor lock-in through tactics like these would be a smoking gun for the DOJ. Illegal tactics could include tying (You must buy X to get Y), retaliation (I won’t ship you the volumes or get you the samples you want if you go with a competitor), exclusionary rebates (I’ll give you this price only if you don’t buy from a competitor), or somehow technically blocking competitors’ fair access to the market. We saw that last one with both Apple and Microsoft; in this case, it could apply, for instance, if Nvidia is preventing competitors from interfacing with its market-dominant CUDA software platform.
What Are The Immediate Implications?
The first thing to know is that these actions take time—easily a decade, in many cases—from investigation to judgment to appeal. You can take your pick of examples, including AT&T, IBM, Microsoft and recently Google. If there’s enough of a smoking gun, the courts or regulators may issue an injunction or other directive that forces the company to change its behavior, as has happened with Apple’s handling of its App Store in the EU this year.
So what about the big sell-off of Nvidia stock on the day the Bloomberg report came out? While I’m sure the antitrust news didn’t help the situation, Nvidia’s stock didn’t drop because of it. Investors are rightly worried about the economy, so the main pressures on Nvidia’s stock price are macroeconomic. When I offered my viewpoint on this story on Yahoo Finance, I joked that the biggest thing CEO Jensen Huang could do about the share price would be to calm people’s fears about a recession. (I also gave my thoughts on the matter on CNBC.) Meanwhile, institutional investors know very well that any serious DOJ investigation will take many years to resolve; they won’t care about it until way down the line when there’s a ruling.
In the closer term, the real impact of this investigation will likely be to slow Nvidia down a bit. If your company is involved in an antitrust investigation, it’s like putting sand in a gas tank: every conversation about pricing, strategy or allocation needs to happen with a lawyer in the room. You have to get legal approval for every pricing or bundling decision, and you have to put it all in writing—with lawyers copied on every piece of correspondence. (Tangent: no small part of AMD’s successful antitrust action against Intel was made possible by the staggering amount of work the legal team did combing through mountains of Intel’s correspondence. My lawyers told me that I had my own pile of evidence.)
I don’t think Nvidia will be slowed by this as much as Microsoft was when it came under this kind of scrutiny 20-plus years ago. Nvidia is moving so fast and executing its business so far ahead of its competitors that a little bit of sand in the gas tank likely won’t slow it down much.
Who Benefits In The Longer Term?
That said, Nvidia of course needs to watch what it’s doing. At some point, we’re likely to know more about which companies have complained to the government about Nvidia’s practices. I wouldn’t be surprised if this includes not just its direct competitors, but also some of its largest hyperscaler customers. As I’ve noted recently, no one besides Nvidia is comfortable with the company having 90%-plus market share.
Meanwhile, which companies might capitalize on Nvidia’s antitrust challenges? AMD is the next best replacement for Nvidia GPUs, and then there’s Broadcom with its ASICs. Give it another year, and Intel will be more in the mix with its own GPU-based designs for datacenter chips.
Speaking of Intel brings us full circle. Believe it or not, Intel is still fighting the judgment in its EU case, 15 years later. That’s a good reminder of how long it could take for Nvidia’s antitrust story to unfold.
