By: Nancy, PANews
NVIDIA, the undisputed titan of the AI era, is once again under the spotlight as a long-running investor class-action lawsuit against the company and its CEO, Jensen Huang, has been granted approval. The lawsuit alleges that NVIDIA concealed over $1 billion in revenue derived from cryptocurrency mining, a revelation that has reignited discussions about the frenzied “crypto gold rush” of yesteryear, a period from which the tech giant significantly benefited.
Allegations of Concealing Over $1 Billion in Mining Revenue: Class-Action Lawsuit Moves Forward
A U.S. federal judge recently greenlit a significant investor class-action lawsuit targeting NVIDIA and its CEO, Jensen Huang. The plaintiffs contend that between 2017 and 2018, NVIDIA deliberately obscured the extent to which its gaming graphics card revenue was dependent on demand from cryptocurrency mining operations.
This legal battle, initially filed by investors in 2018, faced an initial dismissal in 2021. However, it was subsequently reinstated on appeal, and NVIDIA’s petition to the U.S. Supreme Court for review was denied. With the case now formally approved as a class action, it moves closer to trial.
The core of the plaintiffs’ argument is that NVIDIA generated over $1 billion in cryptocurrency-related revenue through its popular GeForce gaming GPUs but largely categorized these earnings under its “Gaming business” segment. This accounting practice, they claim, downplayed the significant risks associated with the volatile cryptocurrency market to investors. Furthermore, investors accuse CEO Jensen Huang of publicly minimizing the true scale of cryptocurrency demand at the time, while NVIDIA consistently maintained that crypto mining constituted only a minor portion of its business, with gaming revenue primarily driven by actual gamers.
Plaintiffs highlight that this alleged misrepresentation directly exposed the company to the extreme cyclical fluctuations of the cryptocurrency market. A particularly stark example cited is the sharp decline in NVIDIA’s stock price, which plummeted approximately 28.5% within two days following a “corrective disclosure” in November 2018.
Crucially, the court’s ruling cited an internal email from an NVIDIA Vice President as compelling evidence. The judge noted that this executive’s communication suggested the company’s “stock price was maintained at a high level precisely because of previous related statements,” indicating a direct link between the company’s public statements and its market valuation.
This isn’t NVIDIA’s first encounter with regulatory scrutiny over its crypto-related disclosures. In 2022, the U.S. Securities and Exchange Commission (SEC) accused the company of failing to adequately disclose the impact of crypto mining on its gaming business, suggesting that its financial reports for two quarters might have misled investors. NVIDIA, without admitting or denying the SEC’s allegations, agreed to a settlement involving a $5.5 million penalty.
The newly approved class-action lawsuit encompasses investors who purchased NVIDIA stock between August 10, 2017, and November 15, 2018. A case conference is scheduled for April 21, where the judge will outline the subsequent trial procedures.
NVIDIA’s Foray into the Crypto Gold Rush: A Historical Perspective
To understand the current legal entanglements, one must rewind to the fervent cryptocurrency bull run of 2017. During this period, mining rigs were snatched up, chips became a scarce commodity, and countless prospectors flocked to Bitcoin mining. NVIDIA, then primarily renowned for its gaming graphics cards, found its GPU products in unprecedented demand. As Bitcoin, Ethereum, and other cryptocurrencies skyrocketed in value, the graphics card market experienced severe shortages, leaving even casual gamers struggling to acquire a card.
The enthusiasm for mining reignited with a new bull market in 2020. This time, NVIDIA took a more direct approach, introducing dedicated CMP (Cryptocurrency Mining Processor) cards designed specifically for Ethereum mining. Concurrently, it implemented mining performance limitations on its gaming-oriented RTX 3080 GPUs. Despite these measures, the insatiable demand from miners persisted. NVIDIA’s disclosures revealed that in Q1 2021 alone, sales of its specialized CMP chips reached $155 million, against a backdrop where the global discrete graphics card market contributing to crypto mining was approximately $500 million during the same period.
Evidently, this mining boom proved immensely lucrative for NVIDIA. However, the exact proportion of this revenue derived from miners remained opaque. In NVIDIA’s financial reports, mining-related earnings were often subsumed within the “Gaming” segment, making it challenging for external observers to ascertain their true structural contribution.
From a revenue perspective, cryptocurrency mining undeniably propelled NVIDIA’s growth during that era. In 2018 alone, NVIDIA’s operating revenue soared to $9.714 billion, marking a 41% year-over-year increase, with the gaming business contributing over half (approximately $5.5 billion). Intriguingly, during this same period, Bitmain, a mining equipment manufacturer established just a few years prior, experienced rapid expansion, with its profits at one point nearing NVIDIA’s – a company that was, notably, one of its key suppliers.
However, this revenue stream was inherently vulnerable to the extreme volatility of crypto cycles. Following a dramatic collapse in mining demand in 2022, NVIDIA faced declining sales and a significant inventory surplus. The gaming business, heavily impacted by plummeting GPU sales to miners, became a drag on its overall performance. Ironically, in 2023, NVIDIA CTO Michael Kagan candidly stated that cryptocurrency “brings nothing useful to society,” asserting that breakthroughs like ChatGPT represented the “iPhone moment” for the AI sector.
Since then, NVIDIA’s narrative has dramatically shifted, with its well-documented rise as the preeminent “picks and shovels” provider for the AI revolution. As NVIDIA now supplies the foundational technology for a new era, many of the erstwhile successful crypto mining enterprises are also pivoting their focus towards the burgeoning AI industry, seeking new opportunities in a transformed technological landscape.
