Nvidia Scrambles for a Response to Antitrust Scrutiny

Nvidia rocketed to the top of the tech industry by providing the computer chips essential to building artificial intelligence. By the end of last year, it had more than a 90 percent share of those chips sold around the world.

That success has quickly brought government scrutiny. Authorities with the European Union, Britain and China asked the company for information about its sales of those important chips, allocation of supplies and investments in other companies, according to Nvidia’s financial filings.

The Justice Department has also started investigating Nvidia’s sales practices and will review one of the company’s most recent acquisitions, said three people familiar with the inquiries, who asked for anonymity because it is early in the process.

Nvidia wasn’t ready for the attention, and is now racing to build the staffs and offices needed to respond. Just last year, Nvidia started searching for an office in Washington and hired four public policy employees. This year, it added its first in-house competition attorney to work alongside a legal team that has been addressing antitrust questions over the past decade. And it has begun developing a strategy to respond to government interest.

Nvidia’s scramble speaks to the narrow window it has to head off the kind of regulatory attention that has hamstrung other tech giants. Google, Apple, Amazon and Meta had at least a decade to build up sophisticated Washington operations ahead of antitrust lawsuits, which have cast a shadow over their businesses. On Monday, a federal judge issued a landmark ruling that Google had violated antitrust law by abusing a monopoly over internet search.

For Nvidia, the business stakes are enormous. Over the past two years, its quarterly profits have risen ninefold to $14.88 billion. Investors have responded by making it the world’s third-most-valuable technology company after Apple and Microsoft, with a value of about $2.5 trillion.

Nvidia’s speedy ascent has given it little margin for error. Its stock fell more than 6 percent on Monday after The Information, a tech news site, reported that Nvidia would ship its newest A.I. chip three months later than planned, and there is mounting skepticism about A.I.’s potential to transform businesses.

Nvidia dominates sales of chips known as graphics processing units, or GPUs, which make it possible to create A.I. systems in data centers. Customers want more of those chips than Nvidia can produce. As a result, antitrust authorities are concerned about Nvidia’s power to determine how a scarce but essential technology is being allocated.

“Regulators want to find out if Nvidia is putting their thumb on the scale of the deal or if the product is so good that it sells itself,” said Daniel Newman, chief executive of the Futurum Group, a tech research firm that pegged Nvidia’s GPU market share at 92 percent. “There’s no evidence they’re doing anything monopolistic or anticompetitive, but the conditions are right because of their market leadership.”

In the eyes of many customers, Nvidia, a 31-year-old Silicon Valley company, has earned its success. The company bet its future on using GPUs to train the neural networks that power the large language models that are behind popular chatbots like OpenAI’s ChatGPT. Now, it is expanding its business to include the sale of connected supercomputers and a cloud computing service.

Nvidia plans to counter mounting antitrust concerns by responding to government requests on a case-by-case basis. The company argues that it is conducting its business fairly and in accordance with competition law.

Tim Teter, Nvidia’s general counsel, is responsible for making Nvidia’s case to investigators. He joined the company in 2017 after more than two decades at the law firm Cooley, where he worked on commercial litigation, patent and technology cases. He’ll work closely with Jensen Huang, Nvidia’s chief executive.

“Regulators need not be concerned,” said Ken Brown, a company spokesman. “But we’re happy to provide any information regulators need.”

As government scrutiny of its business has increased, Nvidia has been slowly building its presence in Washington. It has seven lobbyists working on its behalf, according to Open Secrets, a government transparency group. Much of their focus has been on responding to the Biden administration’s crackdown on chip sales to China, which last year accounted for 17 percent of the company’s $60.9 billion in sales.

The other tech giants — Apple, Amazon, Google, Meta and Microsoft — have had offices in Washington for at least a decade. Each has between 55 and 125 lobbyists working on its behalf across a variety of issues, including trade, taxes, antitrust and patents.

Tim Cook, Apple’s chief executive, and Brad Smith, Microsoft’s president, regularly visit Washington to meet with lawmakers. They also travel to Europe to meet with antitrust regulators.

Before last year, Mr. Huang seldom visited the capital. But as the Biden administration stepped up its China restrictions last year, he visited Washington twice.

Last summer, Mr. Huang joined the chief executives of Intel and Qualcomm for meetings with Secretary of State Antony J. Blinken and Commerce Secretary Gina M. Raimondo.

Mr. Huang also hosted a dinner with representatives from several Washington think tanks at the Jefferson, a hotel where basic rooms start at $425 a night. He told attendees that he wanted to build relationships in the capital, introduce them to the company’s story and explain what it sees as the positive economic benefits of A.I.

This year, in the wake of complaints about Nvidia’s chokehold on the A.I. market, Washington’s concerns have shifted from China to competition, with everyone from start-up founders to Elon Musk grumbling about the company’s influence.

Those complaints have spiked as Nvidia has increased its ownership of critical pieces of the A.I. supply chain. It offers cables and switches that control high-performance computers, software that manages data center performance and a computer language, CUDA, that developers use to control Nvidia’s chips.

In 2020, it spent $7 billion to buy Mellanox, the maker of high-speed cables and switches that transmit the data between servers to create A.I. systems. Two years later, it introduced its own central processing unit, or CPU, to deliver better GPU performance.

By bundling its products for customers like cloud computing providers and server manufacturers, Nvidia enjoys more pricing flexibility and power than rivals, four people familiar with its business said.

Nvidia’s dominance in A.I. has complicated its plans to acquire other companies that could complement its business. When it offered to buy Arm Holdings, which licenses the designs used to create chips, for $40 billion in 2020, competitors and customers complained that the move would give Nvidia too much power over the industry. Nvidia abandoned the deal in 2022 after the Federal Trade Commission sued to block it. That was more than a year before Nvidia began building out its Washington presence.

At the semiconductor industry’s annual gala in the fall of 2021, Mr. Huang joked that he had been outmaneuvered on the acquisition by Cristiano Amon, the chief executive of Qualcomm, a chipmaker with a more established legal and public affairs team.

“I connected some dots tonight,” Mr. Huang said. “I was trying to figure out how is it possible that Cristiano knew every single regulator on the planet, that by the time I got there to tell them about my story on Arm, he was already there advocating against it?”

Today, Nvidia is facing another challenge to its acquisition plans. It has offered $700 million for Run.ai, a start-up that controls the scheduling of A.I. systems. But the Justice Department plans to review the deal alongside its inquiry into Nvidia’s business practices, a person with knowledge of the plans said. The review and details of the broader Justice Department investigation were reported earlier by the tech news site The Information and Politico.

“Nvidia has been welcomed with open arms to the regulatory party,” Mr. Newman of the Futurum Group said. “The scrutiny will be substantial, frequent and endless.”