Beijing: On Monday, China announced an investigation into Nvidia, alleging potential violations of the country’s anti-monopoly laws. This probe is widely seen as a retaliatory response to recent U.S. restrictions on the Chinese chip industry. The State Administration for Market Regulation’s statement did not specify the exact nature of Nvidia’s suspected violations, but indicated that the company may have breached commitments made during its 2020 acquisition of Israeli chip designer Mellanox Technologies.

This investigation adds to the ongoing trade tensions between China and the United States, as both nations compete for technological dominance. Just last week, four of China’s leading industry associations issued an unusual and coordinated statement, warning that Chinese companies should avoid purchasing U.S. chips, which they claimed are now "unsafe" and should instead look to local alternatives.

Nvidia’s stock fell by 2.5% on Monday in response to the news. In a statement, an Nvidia spokesperson expressed the company’s commitment to providing high-quality products and upholding its obligations globally, stating that they were "happy to address any questions regulators may have."

Bob O'Donnell, chief analyst at TECHnalysis Research, told Reuters that the investigation is unlikely to significantly affect Nvidia in the short term, as most of the company’s advanced chips are already restricted from being sold to China.

This investigation comes shortly after the U.S. imposed its third major crackdown on China’s semiconductor sector in three years, restricting exports to 140 companies, including chip equipment manufacturers. In retaliation, China banned the export of critical minerals such as gallium, germanium, and antimony to the U.S.

Nvidia has been caught in the crossfire of the U.S.-China trade dispute. In 2022, U.S. sanctions blocked the shipment of its A100 and H100 AI chips to China, prompting Nvidia to develop modified versions. However, these China-specific chips were also later restricted under tighter U.S. controls in October 2023, forcing Nvidia to release new versions tailored for the Chinese market.

O'Donnell remarked that while the Chinese government’s actions are in direct response to U.S. restrictions, their ability to impact the U.S. semiconductor industry is dwindling over time. Nvidia once held over 90% of the AI chip market in China, but now faces mounting competition from domestic companies, particularly Huawei. China accounted for around 17% of Nvidia’s revenue in the year ending in January, down from 26% two years earlier.

In 2020, Nvidia received approval for its acquisition of Mellanox Technologies, despite concerns that the escalating U.S.-China trade tensions could complicate the process. The deal was approved under certain conditions, including requirements for Nvidia to provide GPU accelerators to the Chinese market on "fair, reasonable, and non-discriminatory" terms. These conditions also prohibit forced bundling of products, unfair trading terms, and discriminatory practices toward customers.

China's last major anti-monopoly investigation into a foreign tech giant occurred in 2013 when Qualcomm’s local subsidiary was investigated for overcharging and abusing its market position in wireless communications. Qualcomm eventually paid a record $975 million fine.