When you are at the top of any market, you will face anti-trust scrutiny and be more vulnerable to related legal accusations and challenges, not because you necessarily did anything wrong, but because those that reach the top often misbehave and you’ll be painted with that same broad brush. NVIDIA has reached the top in valuation and in AI dominance, and even though this leadership was decades of hard work in the making, it seemed to have happened unusually fast largely because much of the market had concluded NVIDIA’s advances were still decades away.
While I can understand why a regulatory body would target NVIDIA in this instance, NVIDIA’s success is too new to have allowed the company to use its newfound power illegally, suggesting France’s action is premature, and operating without EU support supports the conclusion it is also ill-conceived.
Let’s talk about NVIDIA, France and anti-trust this week.
Monopolies Aren’t Inherently Illegal
It isn’t illegal to have a monopoly. What is illegal is using your monopoly power to thwart competition. But when you gain monopoly power by having a unique and protected product or service and not because of illicit behavior, it still looks like you are guilty of doing something, as is the case here, resulting in investigations and charges.
IBM has had a number of anti-trust issues over the years. A few years back and decades after the market and IBM decided mainframes were obsolete, IBM was charged with anti-trust behavior on mainframes. But this was not because IBM had done anything wrong. It was because other mainframe builders either went under or exited the market because they believed mainframes were dead. To everyone’s surprise, including IBM, it turned out that belief was false, and IBM, having been the largest, had enough of a core market left to rebuild its business. This led it to dominance again (in what was a much smaller opportunity than had existed earlier) and anti-trust exposure.
As of this date, I haven’t seen any smoking gun, but there is a reasonable chance that had France waited, some executive at NVIDIA would have used their power inappropriately (there are a lot of executives in the world that don’t understand why you need to avoid any abuse of power), and I doubt any company, including NVIDIA, is immune. I just don’t think there is evidence yet of this happening.
NVIDIA’s Benefit
However, a problem for a company like NVIDIA is that it can become excessively insular and not realize that the new threats its success has created need to be mitigated. I doubt NVIDIA had much of an anti-trust mitigation effort internally yet, or a robust enough internal audit function to assure executive behavior. Challenges like this will point out this deficiency because they’ll initially lack the capability to rapidly deal with problems like unreasonable litigation.
But the French anti-trust claim will highlight this shortcoming. NVIDIA CEO Jensen Huang is no fool, so I’d expect him to staff up a defense and assure behavior that will prevent a successful anti-trust challenge in the future. Thus, this investigation should help NVIDIA transition into a company that can better defend against charges like this. Given its leadership in AI, it wouldn’t surprise me if NVIDIA put AI at the core of this defensive function in terms of internal monitoring and enforcement of company policies regarding competitive behavior.
IBM initially (and Microsoft eventually) got stronger after anti-trust challenges because, as it turns out, being anti-competitive can damage your long-term performance, as well. So, there is a strong likelihood that, like IBM and Microsoft, NVIDIA could emerge stronger as a result of this investigation than it was before.
Wrapping Up:
Any company reaching the level of dominance NVIDIA has will be faced with the “guilty until proven innocent” side of anti-trust litigation. This will be particularly difficult coming out of France because their legal system is vastly different than ours. It places a far higher burden on the accused, and it doesn’t work from precedence.
However, given how new NVIDIA’s dominance in AI is and how new the market is, coupled with some of the more poorly thought-out charges (price fixing for instance), I expect NVIDIA will emerge from this stronger and better prepared for future legal challenges, which are common when you are as successful as NVIDIA is.
