NVIDIA Corporation (NASDAQ: NVDA) shares continued to slide on Tuesday, falling more than 3% after a Chinese regulator announced that it was investigating the chipmaker for possible violations of the country’s antimonopoly law.
On Monday, December 9, the Chinese government announced that The State Administration for Market Regulation (SAMR) had initiated an investigation concerning Nvidia’s acquisition of Mellanox and some agreements made during the acquisition. Nvidia’s acquisition of Mellanox Technologies in 2020 required approval from Chinese antitrust regulators given their substantial operations in China.
The country’s competition authority approved the $7 billion acquisition on the condition that competitors be informed of any new Mellanox products within 90 days of NVIDIA Corporation (NASDAQ: NVDA) gaining access to them. The current investigation aims to highlight whether Nvidia complied with this requirement or failed to do so.
South China Morning Post reveals that (AI) chip giant Nvidia could face a fine of up to US$1 billion under Beijing’s antitrust probe. The move, considered retaliation against Washington’s chip restrictions, marks the first time that China’s market regulator has opened the books on a closed deal.
As per China’s antitrust law, companies violating antitrust regulations could face fines ranging from 1 to 10 percent of their annual sales from the previous year. However, it does not specify whether this applies to global or China sales.
China, including Hong Kong, is Nvidia’s third-largest market by revenue, with sales reaching US$10.3 billion for the financial year ended January 24 (nearly 17 percent of its total revenue). However, it is too early to determine the exact amount of the fine Nvidia could be facing.
“Nvidia wins on merit, as reflected in our benchmark results and value to customers, and customers can choose whatever solution is best for them. We work hard to provide the best products we can in every region and honour our commitments everywhere we do business. We are happy to answer any questions regulators may have about our business.”
– Nvidia said in a statement issued in response to the probe.
The leading AI chipmaker slid despite a key sales boost from supplier TSMC. While TSMC’s strong sales highlight robust demand for Nvidia’s GPUs and AI chips, investor sentiment was likely overshadowed by the ongoing antitrust probe. Nvidia’s continued slide today may also have been due to traders opting to sell an “earlier pop”. Historically, December hasn’t been kind to Nvidia either. According to Benzinga, the semiconductor giant often comes into a temporary bearish phase following its third-quarter earnings report.
Nvidia’s performance through November is typically strong, creating a favorable environment for year-end profit-taking. This move to secure profits before year-end creates a downward pressure. Nevertheless, December declines like these are likely to be temporary, with the stock likely to rebound in the first quarter, as it has done so previously.
Our research director shared his views on NVDA’s earnings results here. He thinks NVDA stock can reach $170 within 3 months. While we acknowledge the potential of NVDA as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than NVDA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
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