China investigating Silicon Valley-based tech company Nvidia: Here's what we know

SANTA CLARA, Calif. -- China has opened an antitrust investigation into American chipmaker Nvidia, the world's largest provider of processors that power artificial intelligence, according to Chinese state media.

The probe serves as the latest escalation of a growing battle for AI dominance, which both the United States and China believe is crucial for national security.

China Central Television in a report Monday said the Chinese government believes Nvidia's purchase of Israeli networking company Mellanox could violate the country's anti-monopoly laws, though the report did not specify what the merger did to potentially break the law. China approved the acquisition in 2020.

Nvidia (NVDA) shares fell less than 2% in premarket trading Monday. The stock is among the hottest on the market, surging nearly 200% this year as the AI boom has fueled demand for the company's chips. Its market value is more than $3 trillion, second only to Apple.

The tit-for-tat China-US chip war has entered a new phase this month, after the Biden administration imposed another round of restrictions on high tech memory chip sales to China a week ago. The memory chips are different than the graphics processors Nvidia makes, but they are also crucial technology that helps power AI.

The administration's new export controls are the third such round of chip sales restrictions to China. The United States fears that China could use AI to gain a military advantage, and US Commerce Department officials said they believed the restrictions would slow China's development of AI chips - and industry experts believe the US government's plan will work.

But China's Commerce Ministry lambasted the United States' restrictions, saying they pose "a significant threat" to the stability of global supply chains. China's government retaliated last week by banning the sale of materials essential for manufacturing the chips, including germanium and gallium.

A year ago, China had curbed the sale of those materials but created loopholes that allowed for some sales to continue. Those have now been closed.

Senior US officials have also accused China of stealing American-made AI software, which Beijing denies.

The Nvidia investigation ups the ante. The company is the face of the AI tech revolution and hurting Nvidia could harm the American company's ambitions to continue to power AI around the world.

Nvidia is also under antitrust scrutiny in the United States, according to Bloomberg.

In addition to curbing materials and chips sales, both China and the United States are trying to bolster their own development and manufacturing of microprocessors at home.

Through the CHIPS Act, the Biden administration has pumped billions of dollars into Intel and other companies to boost domestic production of chips and reduce America's reliance on China and other foreign countries for the technology. Meanwhile, China in May announced plans to set up its largest-ever semiconductor state investment fund worth $47.5 billion, funded by investments from six of the country's largest state-owned banks.

This story has been updated with additional developments and context.

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