Nvidia navigates US-China trade tensions as antitrust probe, trade restrictions surface

The news: Nvidia, the linchpin of global AI infrastructure, is finding itself ensnared in US-China geopolitical tensions. 

Chinese regulators are investigating whether Nvidia violated its anti-monopoly law in its 2020 acquisition of Mellanox Technologies. 

• The investigation is seen as a retaliation for Washington’s tough stance on the Chinese semiconductor sector, per Reuters.
• If it’s found to be out of compliance, the company could face fines up to 10% of its prior year revenue.

Scrutiny of Nvidia comes after the Biden administration’s third crackdown in three years on China’s semiconductor industry. It curbs exports to 140 companies and limits China’s access to chips that could advance AI for military use or threaten US security.

China takes on Nvidia: Beijing’s investigation comes as Nvidia faces US pressure to alter its China sales strategy to comply with intensifying export restrictions on advanced AI hardware. 

• News of the inquiry shook investor confidence, causing Nvidia’s shares to fall 2.6% Monday and dampening Wall Street markets.
• Nvidia CEO Jensen Huang reaffirmed Nvidia’s commitment to US regulations, telling investors it was the company’s “highest mandate.”

Next possible steps: Nvidia may need to reassess its China strategy and shift supply chains or production to mitigate risks. That could result in delays of its Blackwell processors. 

• Ensuring adherence to both US and Chinese regulations is crucial to avoid further penalties and maintain market access.
• Appeasing two feuding superpowers could take a toll on Nvidia’s growth, making it difficult to maintain its leadership position.

Bracing for a trade war: Chinese firms have been stockpiling chips and supplies for months in light of geopolitical tension. 

Last year, Chinese tech companies scrambled to order $5 billion in processors from Nvidia for fear of losing access to critical components. Moves to secure critical components will likely escalate in the coming months.

Our take: The incoming Trump administration’s mandate to raise tariffs on China, Mexico, and Canada has already resulted in China banning rare mineral imports to the US, putting companies like Nvidia on the defensive.

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