End of the AI goldrush? WSJ says NVIDIA and others contacted by the Department of Justice – NVIDIA’s market cap already down almost $0.5 trillion in the last few days
As has been noted, when troubles come, many seem to arrive at once. The Wall Street Journal (WSJ – subscription needed) reported on Sunday that American regulators are “intervening early” to explore whether a handful of big techcos are using their position to dominate the AI market.
The companies concerned, according to the report, include the chip maker NVIDIA which is said to “own” more than 80% of the AI market. The US Department of Justice (DoJ) apparently wants to discuss the terms of its contracts and partnerships.
The paper’s unnamed sources say the probe is at an early stage and the chip maker is not under subpoena to provide internal documents.
The latest reported probe is against a backdrop of an investigation by the Federal Trade Commission (FTC) into Generative AI investments by the likes of Big Tech companies such as Amazon, Google and Microsoft, and their partnerships. It was launched in January.
Cheaper access to AI chips in China
More trouble could be heading NVIDIA’s way too. On Friday, the UK’s Financial Times [subscription required] published an article pointing out that it is cheaper to rent cloud services that use NVIDIA’s AI chips in China than it is in the US.
The newspaper said this is “a sign that the advanced processors are easily reaching the Chinese market despite Washington’s export restrictions”. It cited a specific example where the cost was 40% less than in the US.
Wider consequences
A blog that appeared yesterday on the investment site, The Motley Fool, noted, “The chipmaker’s stock is down about 15% since it reported second-quarter earnings [which exceeded expectations] on Aug. 28. That’s nearly half-a-trillion dollars – $470 billion – in market capitalization wiped out in a week. It’s an incredible amount. There are only 15 companies on the planet with a market cap that exceeds what the company lost in a week. That shows just how big Nvidia is.”
Which is the trouble – the knock-on effect is huge. The hype around AI has done much to mask just how badly much of the rest of the wider tech sector is faring. Many have not picked up since landing in the doldrums in 2022.
During that year the NASDAQ Composite lost almost third of its value. Even now, many companies are still recovering from the excessive hiring and spending on equipment during the pandemic. For some this has been exacerbated as investment has been redirected into AI.
Today The Financial Times commented, “Investor exuberance around AI-focused companies has faded since the early summer, leading many commentators to predict a prolonged rotation of investor attention away from Big Tech stocks towards sectors such as financial services and industrials.”
As the curse goes, “May you live in interesting times”.