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NVIDIA ( Nasdaq: NVDA ) may be paying the price for being too successful. On Tuesday, 24 minutes after the closing bell, Bloomberg reported that NVIDIA had received a subpoena from the United States Department of Justice. While the report from Bloomberg came after the bell, it's not exactly a stretch to believe that leaky news led to NVIDIA's decline on Tuesday.
The company's stock sank by more than 9%, wiping out a record $279 billion in value in a single day. The size of the loss was even more confounding since the day featured little news aside from Bloomberg's report after the market closed. Let's dive into the details of how worrisome the DOJ investigating NVIDIA is.
Key Points in this Article
- The DOJ has issued subpoenas to NVIDIA and third-party companies in the AI space questioning their competitive practices.
- Other major tech companies that have been the subject of DoJ investigations in recent years include Amazon, Apple, Google, and Meta Platforms. Google recently had a Federal Judge rule against them in their antitrust case, but will appeal in a process that could drag out for years.
- If you're looking for AI stocks beyond NVIDIA, make sure to grab a complimentary copy of "The Next NVIDIA." With NVIDIA under regulatory scrutiny, it's a good time to discover other top AI stocks that could boom in the years by riding the next wave of AI growth.
The DOJ and Antitrust Investigations
Bloomberg reports that both NVIDIA and third-party companies received subpoenas questioning their competitive practices. The DOJ's questions center around whether NVIDIA is making it difficult to switch to other suppliers and penalizing companies not relying on its increasingly integrated systems that combine AI chips, CPUs, and networking technologies.
It's worth noting that the DOJ's investigation doesn't come as a complete surprise. In an article from July 4th discussing France preparing antitrust charges against NVIDIA, we said:
"Finally, it’s worth noting that the US is also investigating with the DoJ taking the lead, but every tech company is being investigated currently so this is no surprise. In fact, it would be more weird if NVIDIA wasn’t being studied by officials in the U.S., and we’re not overly concerned by this development."
That final point is important, nearly every large technology company is under DOJ investigation.
- Amazon ( Nasdaq: AMZN ) is facing a DOJ are investigating Amazon over warehouse practices. The company also had to abandon a planned acquisition of iRobot after European regulatory scrutiny of the acquisition was insurmountable.
- The Department of Justice an 88-page lawsuit against Apple ( Nasdaq: AAPL ) that claims the company is using a smartphone monopoly to "to extract more money from consumers, developers, content creators, artists, publishers, small businesses, and merchants.” The case focuses on Apple's rules around its App Store.
- The DOJ is also e ngaged in an antitrust suit with Google that claims the company is engaging in monopolizing digital advertising technologies. The case against Google has been ongoing since 2020 and in August a Federal judge said “Google is a monopolist, and it has acted as one to maintain its monopoly" in a 286-page ruling.
- The DOJ also settled with Facebook-parent Meta ( Nasdaq: META ) in 2022 over accusations it violated the Fair Housing Act (FHA).
Antitrust Cases Rarely Go to Trial
The good news for NVIDIA is that antitrust cases rarely go to trial. The lawsuit against Google was the first to go to trial in decades, and the judge's ruling in the case will go to appeals that can last for years. Even with Google receiving a harsh rebuke from the judge in this case, there have been no remedies levied against the company.
It's unlikely Google would be broken up, but instead would likely lose contracts with companies like Apple and Samsung that protect its default search engine status on their phones.
What Caused NVIDIA's Plunge on Tuesday?
The general market had a very poor day on Tuesday with the Nasdaq falling more than 3%. Other stocks in the AI space also saw pretty steep losses. Broadcom ( Nasdaq: AVGO ) fell 6.2%, AMD ( Nasdaq: AMD ) plunged 7.8%, and Marvell ( Nasdaq: MRVL ) sunk by 8.2%.
So, the plunge in NVIDIA's share price was likely largely caused by a broader sell-off in 'risky' assets. However, with NVIDIA seeing the most significant drop, it's fair to assume that some 'leaking news' around the DOJ investigating the company added to its decline.
Should NVIDIA investors be worried about the long-term implications? NVIDIA doesn't face zero risk from the investigation, but it's important to note any case could last years and any negative outcome would likely be a settlement. For now, the DOJ investigation is likely background noise as attention will shift in the winter to signals around demand for NVIDIA's next-generation Blackwell systems.
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