The DOJ’s Ill-Conceived Nvidia Investigation
The Biden administration and a bicameral, bipartisan majority of Congress are working to promote semiconductor production in the United States. This would be news to the Department of Justice (DOJ), which is opening an investigation into American chip darling Nvidia. Antitrust scrutiny of Nvidia detracts from American efforts to promote economic and national security regarding semiconductor production, undermining the administration’s priorities. Such a course should be abandoned.
The federal government has undertaken two significant efforts to foster investment and security in the American semiconductor industry. One is the CHIPS and Science Act, which allocated $52.7 billion to incentivize companies to produce semiconductors in the United States. Complementing CHIPS, the U.S. Department of Commerce has imposed export controls on advanced semiconductors to prevent foreign adversaries and their domestic firms from acquiring advanced chips. Even with the law’s shortcomings, semiconductor investment has boomed alongside investments in AI.
Yet the DOJ is taking a different approach to the American semiconductor sector. Recent reporting revealed that the DOJ and Federal Trade Commission (FTC) will investigate several leading AI companies, including Nvidia. The DOJ has yet to release any information on what prompted the investigation, but there are some clues.
Earlier this year, the FTC’s Office of Technology’s Tech Summit devoted an entire panel to issues related to AI, chips, and cloud computing. U.S., EU, and UK competition enforcers recently signed a joint statement articulating their approach to issues concerning generative AI foundation models and AI products, including specialized chips for AI training, Nvidia’s specialty.
While the Biden administration has enabled a more aggressive approach to antitrust enforcement, particularly in nascent markets, legislative and regulatory action on technology has prioritized promoting domestic production or protecting national security, not expanding antitrust tools. The DOJ’s investigation would undermine its own administration’s priorities to the detriment of American firms, citizens, and sovereignty.
An antitrust investigation of Nvidia would impose costs in the short term and create long-term legal uncertainty. Nvidia is no pauper; it can afford a lawsuit. However, the opportunity cost of litigation should not be ignored. One of the largest beneficiaries of CHIPS funding is Taiwan Semiconductor Manufacturing Company (TSMC). Nvidia is dependent on TSMC for manufacturing key chips. With CHIPS Act projects encountering difficulties, forcing Nvidia to reallocate capital away from designing chips and driving demand for TSMC’s services is counterproductive. Nvidia is already dealing with lost revenue after redesigning chips for the Chinese market to comply with export controls. An antitrust suit is unlikely to be resolved quickly, and while the cost may not be debilitating, the uncertainty and potential risk are detrimental to U.S. priorities.
Further, Nvidia’s strength comes from its market-leading product offerings, but it is not guaranteed that its dominance will continue. Nvidia was already dealt an antitrust blow when the FTC blocked the firm’s attempted acquisition of AMD, a competing semiconductor design firm. The FTC’s move proved prescient, as AMD is now gunning for Nvidia’s silicon crown. Big tech companies that are building custom chips to create alternatives to Nvidia present another challenge. One cannot ignore Intel; the legacy chipmaker was awarded nearly $20 billion through the CHIPS Act and now argues that Nvidia should watch the throne.
Beyond hardware, Nvidia is also facing challenges to its integrated software stack. The open-sourcing of Pytorch 2.0, a software library that helps engineers avoid using Nvidia’s proprietary software language when working with its hardware, could lower barriers to entry and switching costs for AI developers and deployers. Another challenge comes from a group creating standards for interconnect in AI chips, the technology which links together multiple servers to power cutting-edge AI applications. Nvidia is absent from this group, which is spearheaded by the company’s competitors and some of its largest customers. Firms are responding to market realities by promoting interoperability and open standards to spur competition and innovation.
The Biden administration and Congress have enacted a plan to expand domestic semiconductor manufacturing capacity, flawed as it may be. A DOJ antitrust investigation into Nvidia undermines such efforts by targeting a critical component of America’s advanced semiconductor sector. The administration’s inability to order policy preferences and promote a predictable regulatory environment is a self-inflicted error. The DOJ should reconsider its investigation or at least refresh itself on the administration’s priorities next time.
Joshua Levine is the Manager for Technology Policy at the Foundation for American Innovation.
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