TMTPOST -- China announced on Monday that it has initiated an investigation into Nvidia over suspected violations of the country’s anti-monopoly laws, a move that many see as a retaliatory measure against Washington’s recent restrictions on China’s chip industry.

The State Administration for Market Regulation, in its statement about the probe, mentioned that Nvidia, known for its artificial intelligence and gaming chips, is suspected of violating commitments it made during its acquisition of Israeli chip designer Mellanox Technologies, based on the conditions set by the regulator in its 2020 approval of the deal.

Nvidia’s stock dropped 2.5% on Monday. A company spokesperson responded to the probe, saying that Nvidia strives to "provide the best products we can in every region and honor our commitments everywhere we do business. We are happy to answer any questions regulators may have about our business."

This investigation follows last week’s announcement by the U.S. of its third crackdown in three years on China’s semiconductor sector, which included restrictions on exports to 140 Chinese companies, including chip equipment manufacturers.

In response to the U.S. move, China quickly retaliated on December 3 by banning exports of crucial minerals—gallium, germanium, and antimony—to the U.S. Additionally, on the same day, four major Chinese industry associations issued a rare joint statement urging Chinese companies to avoid purchasing U.S. chips, labeling them "no longer safe" and encouraging local alternatives instead.

Nvidia, caught in the middle of the U.S.-China crossfire, faced earlier export restrictions that prevented it from selling its most advanced AI chips to China. In response, the company developed new versions of its chips tailored for the Chinese market to comply with U.S. export controls.

Before these restrictions, Nvidia held over 90% of the AI chip market in China. However, the company now faces increasing competition from domestic rivals, particularly Huawei. In the year ending January, China accounted for about 17% of Nvidia’s revenue, down from 26% two years earlier.

In March 2019, Nvidia began its largest acquisition deal in history, acquiring Mellanox, a company established in 1999 in Israel and listed on Nasdaq, which specializes in network interconnect products. The total deal was valued at $6.9 billion. By October 2020, Nvidia renamed Mellanox's SmartNIC solution as Data Processing Units (DPU), considering CPUs, GPUs, and DPUs as the "three pillars of future computing."

In 2020, Nvidia received approval from China for its acquisition of Mellanox Technologies, despite concerns that the U.S.-China trade tensions could derail the deal. Beijing’s approval came with several conditions for Nvidia’s operations in China, including prohibitions on forced product bundling, unreasonable trading terms, and restrictions on customer purchases.

According to China's Antitrust Law, if a company violates its commitments during an acquisition and the actions result in anti-competitive effects, a fine of up to 10% of the previous year’s sales may be imposed. Industry insiders expect Nvidia to face a fine ranging from $100 million to $1 billion, with the potential for a 2-5 times increase if the violations are considered particularly severe, possibly reaching $2-5 billion.

Wu Zihao, CEO of Ronghe Semiconductor Consulting and a special contributor to Tencent Technology, noted that this is the first time in history that the State Administration for Market Regulation has revisited a case after agreeing to the transaction, which he described as a "reopening of old cases."

"This is more of a warning to Nvidia. At the same time, it will accelerate the commercialization of domestic GPUs (graphic processor units), reducing dependence on American chips," said another industry expert.

Globally, Nvidia has also received multiple antitrust warnings. In September 2020, Nvidia announced an agreement to acquire Arm Limited from SoftBank for $40 billion, but the deal was canceled in 2022 after concerns from regulatory authorities in the U.S., Britain, and the EU. Nvidia has also faced investigations by competition regulators in France, the EU, and Britain regarding its dominant position in the AI market. In June, France's competition authority confirmed it was investigating Nvidia for alleged anti-competitive behavior, and the U.S. Department of Justice is also considering intervening in the investigation.

According to third-party data, Nvidia currently controls over 80% of the global AI chip market, with nearly 92% of the generative AI training computing power market. Companies such as Google, Microsoft, and Amazon use Nvidia's GPU products but do not sell their own customized chips. Nvidia’s dominant position allows its products to achieve a 70%-80% gross margin.

OpenAI CEO Sam Altman has noted that the company is heavily dependent on Nvidia GPUs and needs to reduce this reliance. According to reports, training GPT-4 required approximately 25,000 A100 GPUs, and training GPT-5 will need 50,000 H100 GPUs, which cost between $25,000 and $30,000 each, pushing the total training cost over $100 million.

The last time China conducted an anti-monopoly investigation into a major international tech firm was in 2013, when it probed Qualcomm’s local subsidiary for overcharging and abusing its market position in wireless communication standards. Qualcomm ultimately agreed to pay a $975 million fine, the largest penalty China had ever imposed on a company by then.