Nvidia (NASDAQ: NVDA) stocks seem almost unstoppable. The company’s sales and profits have soared and demand for its chips continues to rise as tech companies look to develop artificial intelligence (AI) models. This year, its market capitalization surpassed $3 trillion, placing it among the three most valuable companies in the world.
But all that success can come at a price. Nvidia has become so dominant and important in its part of the AI space that it has attracted the attention of antitrust regulators.
Antitrust investigations focus on powerful influence in AI
According to a New York Times article, the Department of Justice and the Federal Trade Commission are continuing antitrust investigations into three major players in the AI industry: Nvidia, Microsoftand OpenAI, the company behind ChatGPT.
There’s no denying how successful Nvidia has become as a result of the rise of generative AI. ChatGPT launched on November 30, 2022, and since then Nvidia’s stock price has risen by around 600%. As the leading provider of the high-end processors needed to train and power AI models, most companies looking to develop such software go through Nvidia. And since the Time According to the report, one problem is that Nvidia’s AI software platform “locks customers in from using their chips.”
In the case of OpenAI, the company’s generative AI chatbot, ChatGPT, has become wildly successful, and even former employees believe there should be more oversight of such systems given how quickly the AI industry has grown. Microsoft is also a major player in the industry and has purchased a 49% stake in OpenAI.
What does this mean for Nvidia?
If Nvidia’s antitrust investigation leads to charges, there are many possible outcomes. They could be as minimal as a fine from regulators against the company, or as severe as an order that the company restructure its operations and potentially divest certain business units.
Financially, the company is in an excellent position to withstand any potential fines: Nvidia generated more than $39 billion in free cash flow over the last four reported quarters, and profits were nearly $43 billion during that time.
It’s hard to predict the outcome of a legal case. Given the importance of AI and how quickly these three companies are becoming major players in the industry, I’m inclined to think that if the Justice Department’s investigation finds that Nvidia violated antitrust laws, the consequences could be more significant than simple fines or sanctions. But I also don’t think they would be anything as drastic as breaking up the tech company.
Antitrust cases can take years to play out, which can be both good and bad news for investors – good in the sense that they may not have an immediate immediate impact on the company under scrutiny, but bad in that they cast a cloud over throw the target who doesn’t. Do not lift until the issue is resolved.
Is Nvidia too risky to buy right now?
While antitrust cases can be concerning, investors should not be overly concerned about these developments. Moreover, it is virtually impossible to predict with any accuracy what regulators and the courts will do in these situations.
For now, long-term investors should stay the course. This news is not a reason to sell your Nvidia stock, as nothing has actually happened yet.
However, if you’re risk-averse and concerned about the long-term risk this poses to the GPU giant, it might be a good idea to consider investing in other AI stocks, especially considering that Nvidia’s valuation is effectively priced for perfection. When a stock has such a high price tag, any sign of bad news can lead to a sell-off.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft and Nvidia. The Motley Fool recommends the following options: long $395 Jan 2026 calls on Microsoft and short $405 Jan 2026 calls on Microsoft. The Motley Fool has a disclosure policy.
The terrifying nine-letter word that could cause huge problems for Nvidia was originally published by The Motley Fool
