Department of Justice Launches Antitrust Investigation into Nvidia's AI Dominance

The DOJ can't break up Nvidia party, the stock's still going to be high, BofA says

It's too early to say whether rumors of a Department of Justice (DOJ) probe into Nvidia will stop its runaway stock, according to Bank of America. So for now, investors can rest easy. "Until we have more details, we assume no specific material impact on NVDA's fundamental opportunity," Bank of America analysts wrote in a note published on Thursday. On Tuesday, Bloomberg reported the DOJ sent Nvidia subpoenas relating to a possible antitrust investigation. The DOJ is reportedly looking into whether Nvidia made it harder for buyers of its AI chips to switch to other vendors and whether it unfairly penalized customers that didn't exclusively use its chips. In a statement to Fortune, Nvidia denied it had been subpoenaed. "We have inquired with the U.S. Department of Justice and have not been subpoenaed," a spokesperson said in an email. "Nonetheless, we are happy to answer any questions regulators may have about our business." The company also said it "wins on merit" and that customers are free to choose "whatever solution is best for them." A spokesperson from the San Francisco office of the Department of Justice, which is reportedly overseeing the inquiry, declined to comment, citing departmental policy. Bank of America did not respond to a request for comment. The supposed inquiry into Nvidia's dominance in the AI industry began in June, according to Bloomberg. It is still too early to know the exact nature of the DOJ's investigation -- assuming there even is one -- nor whether it will result in a formal complaint. While issuing subpoenas is a clear step in that direction, Bank of America emphasizes that it has "no specific insight into any specific outcome," leaving it in a holding pattern. As such, Bank of America reiterated its Buy rating, still considering Nvidia a top pick in the tech sector, according to the analyst note. On Thursday, Nvidia's stock sat at $106.83, having risen 121% this year. Bank of America maintained its price target of $165, which implies the bank still sees 54% upside in the stock. However, over the past five days Nvidia's fell 12%. Bank of America highlighted three points in Nvidia's favor: Each of those was meant as some early evidence that Nvidia's dominance in the chip market was unlikely due to foul play, according to Bank of America. "Nvidia's cloud customers are some of the most sophisticated and resourceful in their ability to source chips from multiple vendors, including their internal custom chips," Bank of America's note reads. There is also truth to the fact that Nvidia's chips do in fact outperform those from its competitors. It regularly scores better than them on the MLPerf industry benchmarks. That led Nvidia to an estimated 75% to 90% market share of the AI chip market, according to CNBC. Last month, as Wall Street eagerly awaited Nvidia's latest earnings report there were rumblings that overall demand for AI chips was slowing. Nvidia smashed those concerns, when it reported a 122% increase in revenue. Nvidia is also hardly the only big tech company facing an antitrust probe. Apple and Alphabet are also caught up in cases regarding their business practices. A fact that Bank of America analysts acknowledged, noting, "while every case is different, we also highlight the plethora of government cases ongoing against other large US tech companies over the last several years." Stocks for Alphabet and Apple have, so far, remained immune to their respective investigations. This year, Alphabet Class A and Class C shares are up 13% and Apple's rose just under 20%.

What Nvidia leadership should be doing to prepare for a possible DOJ case

This story is available exclusively to Business Insider subscribers. Become an Insider and start reading now. Have an account? Log in. "Nvidia's best approach right now is to remain open and fully cooperative with the DOJ," Jason Chung, an attorney and clinical assistant professor at New York University's School of Professional Studies, told Business Insider. Bloomberg, citing anonymous sources familiar with the matter, reported Tuesday that the DOJ sent Nvidia and other tech companies subpoenas in connection to an investigation into whether the AI chip giant violated antitrust laws. Nvidia denied that report in a statement Wednesday, saying the publicly-traded company "inquired" with the Justice Department and did not receive a subpoena. "Nvidia wins on merit, as reflected in our benchmark results and value to customers, and customers can choose whatever solution is best for them," a Nvidia spokesperson said. "We have inquired with the US Department of Justice and have not been subpoenaed. Nonetheless, we are happy to answer any questions regulators may have about our business." In a new report on Wednesday, Bloomberg, citing one person with direct knowledge of the matter, said that the DOJ sent Nvidia what's known as a civil investigative demand seeking information about the company's $700 million acquisition of Israeli AI startup Run:ai and other elements of its business. The outlet noted that the document demand is commonly referred to as a subpoena. The DOJ did not immediately respond to a request for comment by BI. In any case, Nvidia brass should most definitely be preparing for a potential DOJ antitrust lawsuit and doing whatever it can to cooperate with the federal agency's investigation, legal experts said. Chung, a tech law expert, told BI that getting a civil investigative demand "signals that the investigation is in a fact-finding stage." A civil investigative demand is a tool reserved for certain agencies, like the DOJ and the Federal Trade Commission, to gather information early in civil investigations, he said. "Nvidia should ensure clear, transparent communication and trust its legal team to guide interactions. Cooperating shows good faith and may help mitigate potential concerns," Chung said. "At the same time, it's essential for the legal team to thoroughly review all documents and communications to prepare for any possible outcomes." Additionally, said Chung, the AI chip maker should avoid any actions that could be perceived as "obstructive." "This means responding to the CID promptly and accurately while refraining from any conduct that could be seen as influencing witnesses or tampering with evidence," Chung said. "Internally, it's important to continue business as usual while maintaining compliance with legal guidelines." George Hay, a professor at Cornell Law School and former chief economist for the Justice Department's antitrust division, explained that a civil investigative demand is a request for documents or other information, while a subpoena typically means a request to appear for a deposition. "It's probably too soon in the investigation for that so a CID is more plausible," the antitrust law expert told BI. Still, Hay said, at this point, Nvidia should be "worried" about the DOJ's probe, but it doesn't mean an antitrust lawsuit is inevitable. Just because there's an investigation does not mean that the company has done something illegal, Hay pointed out. "What happens after that depends entirely on the results of the investigation," Hay said. Chung added that the reported issuing of a civil investigative demand "shows the DOJ is seriously gathering information." "It's smart for any legal team to think ahead and be ready for whatever might come, whether that's a lawsuit or something else," he said. Nvidia, Chung said, "should definitely be prepared for the possibility of an antitrust lawsuit, especially considering how the DOJ has gone after other big tech companies like Google and Apple." "Preparation for any potential escalation should still focus on gathering strong internal documentation, reviewing market practices, and ensuring compliance with antitrust regulations," said Chung. "Involving external legal experts and advisors to assess market strategies remains a prudent step," he said.