The Department of Justice has contacted Nvidia relating to the company’s more than 80% market share of the burgeoning AI chip industry.
Reports that the DOJ sent subpoenas to the leading manufacturer of data center graphics processing units, the hardware that powers much of artificial intelligence, were denied by Nvidia. But with the government sending out questionnaires previously, an investigation is surely underway.
Specifically, reports indicate the DOJ is concerned that the company is leveraging its strong market position to make it difficult for current customers to switch to other vendors and acting illegally by giving buyers who exclusively use Nvidia products lower prices, a practice known as exclusionary rebates.
Nvidia was founded in 1993 by engineers Chris Malachowsky, Curtis Priem, and Jensen Huang at a Denny’s restaurant in Silicon Valley, the same chain where Huang bused and waited tables as a teenager while 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 gamemakers like Sega. Their GPU evolved as Nvidia focused in on AI uses, eventually creating a platform that provided both hardware and software.
When big players in tech began to invest in the machine learning that powers AI, Nvidia found itself with the right technology at the right time. Today, Amazon, Google, Meta, Microsoft, and Oracle have all used Nvidia chips, and the company boasts a market capitalization number in the trillions of dollars.
Demand for their products has surged along with the company’s valuation. Nvidia’s stock price more than doubled this year. The company anticipates that there won’t be enough supply to satisfy interest in their newest generation of chips, set to ship later this year and code-named Blackwell.
It’s that intense demand for AI chips in the marketplace, coupled with Nvidia’s unique ability to fulfill it, that’s raising concerns among U.S. regulators. Having a high market share, or even a monopoly, is not itself illegal under U.S. antitrust law. But acting illegally to maintain that monopoly is the allegation now being put to Nvidia.
But Adam Thierer, senior fellow at R Street Institute, disagrees with the scrutiny directed at Nvidia. He told the Washington Examiner, “In a better world, the White House would be draping a medal over Jensen Huang’s neck and praising Nvidia for helping to drive the AI revolution and record-setting stock market gains.”
Thierer then chided the Justice Department during the Biden administration.
“But in Biden’s world, such success and global market leadership apparently only wins you condemnation and harassment from antitrust officials,” he said. “China must be smiling about U.S. officials hobbling our best companies in this fashion.”
Concerned that mergers and acquisitions could also be problematic, the DOJ is investigating Nvidia’s plans to purchase Run:ai, a smaller company that helps make clusters of AI chips more efficient. Both U.S. antitrust watchdogs, the DOJ and the Federal Trade Commission, have tightened scrutiny of merger activity across many industries during the Biden administration.
The DOJ signaled concerns about AI’s role in so-called algorithmic collusion when it filed suit this summer against RealPage, Inc., a seller of software that helps landlords determine rent and lease prices for apartments. In a statement, the DOJ said the AI-driven service is an “unlawful scheme to decrease competition among landlords in apartment pricing” and that “RealPage’s alleged conduct deprives renters of the benefits of competition on apartment leasing terms and harms millions of Americans.” The lawsuit was filed in the U.S. District Court for the Middle District of North Carolina.
For its part, the FTC is investigating AI activity in yet another context with its inquiry into tech giants, like Microsoft, Google, and Amazon, gaining illegal advantages in the burgeoning technology with their large investments in the most promising AI startups.
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It’s unclear what the next administration, under either Vice President Kamala Harris, the 2024 Democratic nominee, or her Republican rival, former President Donald Trump, would mean for the future of heightened antitrust scrutiny in the AI industry. Both candidates have been critical of Big Tech in the past, albeit for different reasons, but the global race for AI superiority with China looms large in policy circles and political considerations.
Critics of recent DOJ and FTC actions argue they make little sense while China continues to step in to fill funding gaps in its own domestic AI companies with state-directed capital and financial aid.