Nvidia Stock Drops Over 2% In Premarket: What's Denting Sentiment Toward AI Chip Stalwart?

Nvidia (NVDA) stock fell sharply in early premarket trading on Monday after China's antitrust agency said it launched a probe into the company for violating the country's anti-monopoly law.

“Recently, after preliminary investigation, Nvidia was found to have violated the Anti-Monopoly Law of the People's Republic of China,” its State Administration of Market Regulation said in a statement on Monday.

The investigation is focused on Nvidia's $7 billion acquisition of Mellanox Technologies in 2019, and some agreements related to the deal. Mellanox is an Israeli company that provides networking solutions for data centers and servers.

“The State Administration for Market Regulation decided to conduct further investigation into it in accordance with the law,” the statement read.

Nvidia stock fell 2.41% in premarket trading, and the stock was among the top five trending equity tickers on Stocktwits early Monday. On Stocktwits, retail sentiment toward Nvidia stock stayed 'bearish' (43/100) and the message volume remained at 'low' levels.

The probe comes as high-level talks are underway between delegations from the U.S. and China in Madrid, Spain. Reports stated that the two sides have discussed trade and the divestiture of TikTok's U.S. unit by its Chinese parent, ByteDance.

Before the trade talks began on Sunday, China launched two probes into U.S. semiconductor companies: an anti-dumping investigation into certain analog IC chips imported from the U.S. and an anti-discrimination probe into U.S. measures against China's chip sector.

The probe against Nvidia will likely strain the relationship between the countries, which are yet to finalize a trade deal to avoid the hefty levies each side has imposed on the other. Also, the U.S. has banned the export of certain high-performance artificial intelligence (AI) chips to China on security grounds.

Major AI chipmakers, such as Nvidia and AMD, have developed workaround chips to circumvent the ban. The Trump administration initially banned and then allowed the export of these special chips.

Nvidia stock has gained 32% this year despite the geopolitical tensions.

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