To The Moon

Analysis of the key points of the Chinese government's antitrust investigation into $NVIDIA Corp(NVDA)$

Personally, to be honest. China has launched a monopoly against NVDA. I saw that China accounts for about 5% of $NVIDIA Corp(NVDA)$ 's revenue.

This seems to have a big impact. But I still chose to add a position.

1. Event:

Chinese media reported that the Chinese government believed that Nvidia was suspected of violating the "Antitrust Law of the People's Republic of China" and the "Announcement of the State Administration for Market Regulation on the Antitrust Review Decision of Invenda Corporation to Acquire the Equity of Maxus Technology Co., Ltd. with Additional Restrictive Conditions" (Announcement of the State Administration for Market Regulation [2020] No. 16), and therefore launched an investigation into the company.

2. Industry background:

(1) Nvidia's AI chip market share is as high as more than 90%.

(2) Nvidia's InfiniBand technology is mainly derived from the acquisition of Mellanox.

(3) Nvidia's AI server solution highly integrates AI chips and InfiniBand.

3. Past case analysis:

(1) Qulacomm antitrust case. The investigation lasted 15 months, and the company was fined RMB 6.088 billion and unified Qualcomm's licensing standards for Chinese mobile phone manufacturers.

(2) Samsung, SK Hynix and Micron price monopoly case. The investigation lasted 19 months, and the three companies finally agreed to adjust their sales strategies in the Chinese market to reach a settlement.

4. Nvidia may need to explain the following to the Chinese government to prove that the company did not violate regulations:

(1) Market monopoly position: Is Nvidia's AI chip monopoly position related to Nvidia's bundling of AI chips with InfiniBand (e.g. GB200)?

(2) Alternative solution restrictions: Did Nvidia deliberately reduce the performance of third-party network solutions to encourage customers to purchase Nvidia AI chips and InfiniBand solutions?

(3) Fair trade principle: Does Nvidia discriminate against Chinese customers by providing lower performance solutions?

5. Prediction of investigation results:

(1) Among the above analysis items of violation of regulations, (1) and (2) are controversial, and (3) is caused by external force majeure (the US government prohibits Nvidia from selling high-end chips to Chinese customers).

(2) In the context of the US-China geopolitical conflict, such actions by the Chinese government can increase its bargaining power with the US government.

(3) The US-China geopolitical competition will not end in the short term. Past cases show that the investigation time of such cases is more than one year. In order to maintain its bargaining power with the US government, the Chinese government may not have a result in the short term.

6. Impact on fundamentals and stock prices:

(1) China accounts for about 5% of Nvidia’s data center revenue. Even if we consider the worst-case scenario, that is, the Chinese government prohibits Nvidia from selling AI chips to the Chinese market, the impact in the short and medium term will be very limited.

(2) The impact of this survey on stock prices can be ignored. If it causes stock price fluctuations, it can be regarded as a short-term impact.

(3) It can be seen that similar surveys may occur in the future, such as investigating whether Nvidia has used its CUDA advantage to achieve a monopoly in AI chips. Investors must be mentally prepared.