The U.S. Justice Department sent subpoenas to Nvidia Corp. and other companies as it seeks evidence that the chipmaker violated antitrust laws, an escalation of its investigation into the dominant provider of AI processors.
The DOJ, which had previously delivered questionnaires to companies, is now sending legally binding requests that oblige recipients to provide information, according to people familiar with the investigation. That takes the government a step closer to launching a formal complaint.
Antitrust officials are concerned that Nvidia is making it harder to switch to other suppliers and penalizes buyers that don’t exclusively use its artificial intelligence chips, according to the people, who asked not to be identified because the discussions are private.
Nvidia shares, which suffered a record-setting rout on Tuesday, fell further in late trading after Bloomberg reported on the subpoenas. Still, the stock has more than doubled this year — fueled by explosive sales growth at the Santa Clara, California-based chipmaker.
As part of the probe, which Bloomberg previously reported in June, investigators have been contacting other technology companies to gather information. The DOJ’s San Francisco office is taking the lead running the inquiry, the people said.
Representatives for DOJ and Nvidia declined to comment.
Nvidia has drawn regulatory scrutiny since becoming the world’s most valuable chipmaker and a key beneficiary of the AI spending boom. Sales have been more than doubling each quarter, and it’s eclipsed onetime chip leaders such as Intel Corp.
That was the gist of views expressed in separate commentaries from JPMorgan Asset Management and BlackRock Investment Institute. Michael Cembalest, chairman of market and investment strategy at JPAM, warned that spending on AI won’t be justified unless demand for AI services from companies outside of tech starts to increase. For Jean Boivin head of BlackRock Investment, “patience is needed” before AI takes off, a process of “years, not quarters.”
Those warnings, of course, aren’t new. Alphabet Inc. shares got hit in July after it reported a spike in AI spending with no promise of a commensurate bump in profits, prompting a rotation out of big tech. But the two latest cautions landed in a market that rallied to just short of records in late August, largely on the promise that the US economy won’t crater before the Federal Reserve delivers rate cuts later this month.
“Are we actually going to stick this soft landing, or are we going to get some type of a report later this week that shows unemployment is starting to rise substantially?” said Brian Mulberry, client portfolio manager at Zacks Investment Management. “That’s where you’re starting to see a lot of this volatility coincide, and it’s just hitting the most overvalued sectors first, and people are starting to look for actual earnings growth, real revenues on the balance sheet. And more importantly than anything, really stable forward guidance.”
The Cboe Voalitlity Index jumped above 20 as the S&P 500 dropped more than 2%, with all but two sectors lower. Like in early August, the selloff spread to other assets. Oil sank 4% and Treasury yields dropped as investors sought havens.
The damage done in the chip sector was extensive, with the Philadelphia semiconductor index dropping the most since March 2020. Intel Corp., whose shares are the second-worst performing in the Philadelphia semiconductor index this year, fell 8.8%. Chip equipment maker Applied Materials Inc. fell 7%. Taiwan Semiconductor Manufacturing Co., the world’s biggest contract manufacturer of chips, dropped roughly the same.
Alphabet, Microsoft Corp. and Apple Inc. lost at least 1.9% as the pain spread to the biggest tech companies looking to reshape the economy with AI.
“Outside of the big tech companies buying among themselves, we haven’t really seen AI spread out across the economy,” Paul Nolte, market strategist and senior wealth manager at Murphy & Sylvest Wealth Management, said. “There’s still a big question about the ROI from all this spending. And if you go back to the dot-com era, the first winners of the internet weren’t always the final winners. We’re not yet at a place, in terms of valuations, where I’d want to buy this dip.”
While the Aug. 5 market rout rattled investors around the globe, equities bounced back almost immediately, adding more than 5% through the end of the month. Nvidia itself was among the leaders of that rebound, but as the Fed signaled unequivocally that it intends to cut rates, the rally was especially broad.
The near-term calendar promises some key economic data releases, especially Friday’s US payrolls report, that will solidify bets on the Fed’s path. But traders will have to wait three weeks for confirmation.
“With equities sharply off the August lows as we enter a well-known period of weak seasonality, and with the first rate cut widely expected and arguably already priced in, it’s not too surprising to see some de-risking as investors await more data/clarity,” Christopher Jacobson, co-head of derivative strategy at Susquehanna International Group.
