Nvidia share price rocked by DOJ subpoena – but its reputation ...

The news has sparked a sharp decline in Nvidia’s share price, causing the company’s total value to plummet by $279bn – the largest single-day drop in market cap for a US company in history.

Founded in 1993, Nvidia initially developed graphics processing units, or GPUs, for video games. It later segued into the cryptocurrency industry and has more recently become one of the biggest players in the AI boom, as its chips have become a vital component for companies building AI models.

Last week, it reported a 122% revenue increase for the second quarter of 2024 compared to the same period last year. Those earnings – which surpassed analysts’ expectations – have been widely interpreted as evidence of the ongoing vitality of the AI boom at a time when some have begun to question the technology’s ability to deliver tangible ROIs for businesses.

But Nvidia’s meteoric growth and expanding influence within the AI industry have also attracted the attention of federal regulators.

Through the subpoenas, the DOJ reportedly aims to determine if the company is exerting any kind of pressure on clients to avoid competitors’ products, which could constitute a violation of US antitrust law.

The subpoenas are just the first step in an investigation that could take quite a while to produce any kind of results. “We’ve got a long way to go,” Bill Baer, who served as assistant attorney general for the DOJ’s Antitrust Division under the Obama White House, told Yahoo! Finance in a video interview earlier today. “This is not a matter of weeks – it’s months.”

The company’s titanic success within the AI industry has made regulatory scrutiny “inevitable,” says Andrew Koneschusky, CEO of crisis communications firm Beltway Advisors. “Success and technological innovation puts a target on a company’s back,” he says. Looking forward, Koneschusky predicts that while investors might be spooked by the subpoena, customers will continue to line up for Nvidia’s industry-leading products.

Still, PR expert John Rich argues that Nvidia's communications team would be wise to be proactive in its approach to addressing any reputational fallout that might be caused by the subpoenas. “In the short-term, their media strategy should be to limit the damage externally through a strong, concise statement,“ he says. "There will come a time in the future to repair the brand, if necessary ... They don't announce Q3 earnings until November, so they have time to gameplan how to communicate this issue to their shareholders and [determine] what course-corrections they should make."

Nvidia did not immediately respond to a request for comment.

Though Nvidia currently controls the vast majority of market share for AI chips – between 70% and 95%, according to one estimate – its reign is being increasingly challenged by competitors like rival chipmaker AMD, and also by tech giants like Amazon, Google and Meta, who have begun developing their own chip-manufacturing operations.

But the company’s recent success, coupled with the fact that it’s become something of a poster child for the current AI boom, makes it unlikely that other chipmakers will usurp its dominant position anytime soon.

“The process of developing chips and establishing a successful business around them is intricate and time-consuming, presenting significant challenges for potential competitors aiming to capture market share from Nvidia,” says Ann Kopuzzha, an attorney whose specialties include data privacy and trademark law. She compares the company’s dominance – and likelihood of weathering the storm – to recent high-profile antitrust action taken against Google. She says: “Google’s stock has remained relatively stable despite losing an antitrust trial last month, demonstrating the resilience of established tech giants in the face of challenges.”

While businesses are likely to keep buying Nvidia’s chips even in the midst of a federal probe, the DOJ subpoena “signals to investors that governments are paying more attention and increased regulation and oversight is coming,” says Kieran Powell, executive vice president of tech PR agency Channel V Media.

That signal has probably been boosted by the recent implementation of the recent enactment of the AI Act in Europe and the advancement of a landmark AI safety bill in California.

Nvidia’s current valuation stands at around $2.67tn, according to CompaniesMarketCap.com, making it the third most valuable company in the world behind Apple and Microsoft.

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