Feds put Nvidia AI deal under antitrust scrutiny

A relatively obscure Israeli start-up has gotten caught up in the tug-of-war between U.S. regulators and the world’s largest tech companies over whether artificial intelligence is at risk of being controlled by a handful of giants.

Justice Department lawyers are investigating the acquisition of the AI start-up Run:ai by semiconductor company Nvidia on antitrust grounds, according to five people with direct knowledge of the matter, who were granted anonymity to discuss a confidential investigation. The companies announced the deal in late April without disclosing a price, though TechCrunch reported $700 million.

Run:ai — which had a preexisting partnership with Nvidia — enables so-called virtualization of graphics processing units, or GPUs, the reason behind Nvidia’s nearly $3 trillion market value. Run:ai’s technology essentially allows its customers to do more with fewer chips, a highly valuable service as demand for the chips far outpacing supply.

Nvidia’s profits have exploded over the last few years as its chips, traditionally used for computer graphics, have been adapted for the heavy computational workloads of AI.

The DOJ investigation comes as regulators around the world are probing the booming AI industry for issues ranging from existential safety and national security risks; the potential for turbocharging consumer fraud; civil rights violations and copyright protections for data used in the technology underpinning consumer services like OpenAI’s ChatGPT. Central to all of those concerns is the fear that a handful of dominant tech companies will control the market in a manner similar to concentration in online commerce, social media and online search and advertising.

In late July the DOJ and Federal Trade Commission in the U.S., the European Commission and the U.K.’s Competition and Markets Authority released an unusual joint statement outlining concerns that just a few companies will have the necessary resources to compete.

“Nvidia wins on merit, as reflected in our benchmark results and value to customers. We compete based on decades of investment and innovation, scrupulously adhering to all laws, making Nvidia openly available in every cloud and on-prem for every enterprise, and ensuring that customers can choose whatever solution is best for them,” Nvidia spokesperson Mylene Mangalindan said. “We’ll continue to support aspiring innovators in every industry and market and are happy to provide any information regulators need.”

A DOJ spokesperson declined to comment. Run:ai did not respond to a request for comment.

In the U.S., both the FTC and DOJ are scrutinizing competition among AI companies, POLITICO previously reported . In June the two agencies agreed to split their remits: The DOJ will investigate Nvidia’s business practices, while the FTC will probe whether Microsoft and its partner, OpenAI, have unfair advantages with the rapidly evolving technology, particularly involving large language models.

At issue with Nvidia is its place in the so-called AI stack, which includes high-performance semiconductors, massive cloud computing resources, data for training large language models, the software needed to integrate those components and consumer-facing applications like ChatGPT. The company’s AI Foundry platform is aiming to be a one-stop shop for customers looking to build AI models.

The company is estimated to have as much as 90 percent of the market for high-end AI chips, which are often difficult to obtain.

The two Nvidia investigations at the DOJ — into the Run:ai deal and Nvidia’s business practices — are separate but related, and both are generally focused on the potential for the company to build a moat around its GPUs, the five people with knowledge of the matter said. As part of the broader investigation of the company, Justice Department investigators have been asking questions about Nvidia’s sales practices including whether it conditions access to its chips on purchases of other products or commitments to not buy from competitors, some of the people said.

One possible concern over the Run:ai deal is the suspicion that Nvidia may have bought the company that enables customers to do more with less compute in order to bury a technology that could curb its main profit engine, some of the people said.

Also potentially at issue is Nvidia’s software known as CUDA, which developers use to write applications for Nvidia’s GPUs. The French antitrust agency flagged concerns about the “sector’s dependence on Nvidia’s CUDA chip programming software (the only one that is 100% compatible with the GPUs that have become essential for accelerated computing).” The agency is also investigating Nvidia.

Some customers and competitors have accused Nvidia of using sales tactics that lock users in at the expense of other options, as well as how it bundles essential related software to the chips, according to some of the people with knowledge the matter.

The Run:ai investigation is the latest move in the broader antitrust push from the Biden administration, which has helped spark a shift toward former President Donald Trump in Silicon Valley, and triggered Republican backlash to the FTC .

The Run:ai probe is also sure to fuel investor concerns that the FTC’s crackdown on M&A is cutting off a key piece of the start-up ecosystem, in which founders and investors rely heavily on acquisitions by larger companies to cash out. In 2021 the FTC and other agencies blocked Nvidia’s acquisition of chip designer Arm. While Arm went on to launch a successful initial public offering, most start-ups never get that chance.

The FTC is also conducting studies of the cloud computing market and the AI investments of Microsoft, Amazon and Google. In May, the DOJ hosted a day-long workshop at Stanford University about competition and AI. The FTC also recently held an AI workshop.