When a company triples in value in just a few months, as computer chip company Nvidia has, investors take notice. But regulators do too, because they know from experience how monopolies engage in illegal anti-competitive behavior that squashes competitors and manipulates the market to expand their dominance. The US Department of Justice (as well as other competition authorities and tech observers) suspects Nvidia has used such tactics to entrench its chips monopoly, and last month it was reported that the Department of Justice was opening an antitrust investigation. It’s high time.
Before the pandemic, few beyond video game enthusiasts – whose top-of-the-line gaming computers and consoles are built on high-capacity Nvidia chips – had ever heard of the company. But thanks to the generative AI boom, Nvidia has become one of the fastest-growing companies ever, and its chips have powered every important AI milestone – including OpenAI’s development of ChatGPT, which holds two-thirds of the AI business tools market.
Because the immense calculations that underpin generative AI require tens if not hundreds of thousands of extremely powerful chips in enormous data centers – calculations that Nvidia’s graphics processing units (GPUs) excel in – the company’s market capitalization has shot up by more than 30 times in just five years, briefly making it the world’s most valuable company earlier this summer, eclipsing Microsoft and Apple.
This is all terrific for Nvidia investors riding the AI wave, although recent stock market volatility suggests the euphoria may be overblown. Nvidia should not be stigmatized for making the most of being in the right place at the right time, but it matters how a company like Nvidia grows. If a company is using unfair practices to push competitors out of the way, jack up prices and deepen the moat around its monopoly, that’s not good for its customers, for fair competition, or for the wider public.
Like other tech giants, Nvidia is laser-focused on dominating every market it enters. It sells 88% of the world’s GPUs, and has elbowed its way to domination in AI, too, which according to some estimates will be a trillion-dollar market within just a few years. Some analysts estimate that Nvidia already controls 98% of the market for data center GPUs.
But like the rest of big tech, albeit with less scrutiny, Nvidia has risen to the top by exploiting its market dominance to lock in customers and marginalize competitors. It bundles everything its customers need (chips, software, and networking services) as a package, and prohibits those companies from doing business with its competitors. Similar tactics, including bundling, tying and self-preferencing, have already led to ongoing and unresolved antitrust actions in multiple jurisdictions against the likes of Amazon, Apple, and Google, and Nvidia could be next; the company is already facing antitrust scrutiny in France, the European Union and the UK.
With its control over a limited supply of in-demand chips, Nvidia has become the gatekeeper of progress. It gets to decide whose AI development can proceed (mostly the tech giants), and who gets starved (smaller competitors). Huge deals with companies like Meta, which buy tens or even hundreds of thousands of chips at a time, are sidelining independent entrepreneurs and researchers that simply can’t compete. And even in serving smaller customers, Nvidia favors the companies it has a stake in.
Everyone benefits from healthy competition in AI chips. Fair access to advanced semiconductors will help ensure that the potential benefits from AI are widely shared, not restricted to a narrow elite. It will give smaller and nimbler companies a fair chance, ensuring that AI innovation doesn’t take place on big tech’s terms. And it will increase choice and lower costs for businesses, resulting in more affordable products and services for consumers. And by reducing our dependence on one all-powerful producer, it will strengthen our resilience to supply chain disruption and technological failures, such as the Covid-19 pandemic or the recent CrowdStrike/Microsoft IT outage.
And there’s another reason to be wary of a hyper-concentrated chip market: AI regulation, be it the EU’s AI Act or the White House executive order on AI, is emerging slowly, putting Nvidia – which gets to decide who gets chips for what – in a quasi-regulatory role. That’s not the way things should work; regulatory policy is a public function, and a for-profit company should not be allowed, through its sheer size, to fill the vacuum. But Nvidia likes it this way, and has stepped up lobbying to try to maintain its de facto control of global AI.
Nvidia’s dramatic rise has taken many by surprise. But while it may be big tech’s “new kid on the block”, that doesn’t mean it should get a free pass from regulators to abuse its monopoly power. By engaging in practices that lock in customers and keep out competitors, Nvidia is trying to rig the AI market in a way that furthers its interests while undermining the public interest. Competition authorities around the world were too slow to stop today’s tech giants from dominating Web 2.0. They can’t afford to repeat the same mistake with Nvidia and AI.
Max von Thun is the director of Europe and transatlantic partnerships at the Open Markets Institute, an anti-monopoly thinktank
