Chinese state media reported on Monday that the State Administration for Market Regulation (SAMR), China’s market regulator, had launched an investigation into Nvidia, alleging that the U.S. chipmaker’s acquisition of Mellanox Technologies, an Israeli manufacturer of computer networking products, may have violated monopoly regulations.

Nvidia shares dropped about 2.5% in U.S. trading Monday, erasing about $89 billion in market value. They are still up over 180% year to date.

China approved Nvidia’s $6.9 billion acquisition of Mellanox in April 2020, but only under the condition that both companies continue to supply GPUs and network equipment to Chinese customers. 

Under China’s anti-monopoly law, companies with a major presence in China must get approval from the SAMR for any mergers and acquisitions, even if neither the buyer nor the acquisition target is Chinese. 

The SAMR’s decisions carry weight. Last year, Intel abandoned its plans to acquire Israeli foundry Tower Semiconductor when the U.S. company failed to get approval from Chinese regulators—even after then-CEO Pat Gelsinger paid a personal visit to lobby for the deal. 

Now, pressuring Nvidia may be Beijing’s newest tactic to secure its position ahead of Donald Trump’s return to the White House next year, which is expected to bring an escalation of export controls and other measures targeting China’s tech sector. 

“I think Beijing is trying to collect bargaining chips before Trump comes into the White House,” said Linghao Bao, a senior analyst at consulting firm Trivium China. “They’re preparing for some tough negotiations ahead.”

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In a statement to Fortune, an Nvidia spokesperson said the company “wins on merit” as reflected in its benchmark results and value to customers.

“Customers can choose whatever solution is best for them. We work hard 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,” the spokesperson added.

The trade war

The first Trump administration targeted firms like Huawei and Semiconductor Manufacturing International Corp. (SMIC), barring them from buying U.S.-made technologies. The Biden administration expanded those controls in 2022 to more broadly constrain chip sales to China. 

Nvidia in particular has been a target of U.S. restrictions, given that its GPUs are key to developing and training the latest AI models. The chipmaker has tried to develop new processors for the China market that comply with U.S. regulations, only for Washington to change its rules, forcing Nvidia to make new changes to its products. In July, Reuters reported that Nvidia is trying to create a made-for-China version of its Blackwell series chip that complies with U.S. rules.  

Last week, Washington unveiled new restrictions on the sale of high-bandwidth memory chips to China, whether made by U.S. or non-U.S. companies. 

Beijing responded by barring exports to the U.S. of gallium, germanium, antimony, and other metals key to making semiconductors. 

Several Chinese state-backed industry associations, representing over 6,000 companies in sectors like auto manufacturing and semiconductors, called on companies to buy locally made chips, alleging that U.S. chips were no longer safe. (The associations did not provide details.)

There is precedent for such a move: Last year Beijing barred operators of key infrastructure from buying products from U.S. memory chipmaker Micron after its cyberspace regulator said Micron’s products had serious network security risks following a review.

Important China market

Despite U.S. controls, China remains an important market for chipmakers.

“Companies will always try to grow their markets as long as they’re allowed to,” said Trivium China’s Bao.

Before Washington’s restrictions, China accounted for about a quarter of Nvidia’s revenue, but while it has since dropped, the Chinese market still accounts for about 12% of the U.S. tech firm’s sales. 

Nvidia CEO Jensen Huang said in late November that his company has benefited from being in China. Speaking during a ceremony in Hong Kong where he received an honorary doctorate degree in engineering from the Hong Kong University of Science and Technology, Huang added that global cooperation in science and research needs to be protected.

In January this year, Huang made a low-key visit to China as well and visited offices in Shanghai, Shenzhen, and Beijing. 

Apart from Nvidia, China also accounted for about 15% of revenues for American chip firm AMD and 27% for Intel. 

Nvidia is now potentially in hot water on both sides of the Pacific. In early September, Bloomberg reported that the U.S. Department of Justice subpoenaed Nvidia over its dominance of the AI market, including allegations that the chipmaker makes it harder for suppliers to switch to other chips. (Nvidia, at the time, said it “wins on merit.”)

Even equipment manufacturers like the Netherlands’ ASML and Japan’s Tokyo Electron are finding themselves in a bind. Washington has long lobbied for chipmaking-equipment manufacturers in allied nations to further restrict sales and services to China, even though the Chinese market represents a significant portion of their revenues.

ASML CEO Christophe Fouquet said in October that he expects the U.S. will likely continue to apply pressure on allies as it seeks to contain China’s access to advanced chips. Much of the world’s chipmaking technology is linked to U.S. companies or to companies that use some U.S. technology, which gives Washington leverage to apply pressure.

Correction, Dec. 10 2024: An earlier version of this article miscalculated the change in Nvidia’s market value.