NVIDIA's old mining case re-examined: A hidden chapter in the AI giant's history

Author: Nancy, PANews

Recently, Nvidia has faced a collective lawsuit from investors, accused of concealing over $1 billion in cryptocurrency mining revenues, attracting market attention.

This lengthy lawsuit has once again brought market focus back to the crazy gold rush from years ago. The current AI empire, Nvidia, was a direct beneficiary of that frenzy.

Accused of hiding over $1 billion in mining revenue, collective lawsuit officially advances

A U.S. federal judge has approved a collective lawsuit against Nvidia and its CEO Jensen Huang.

According to the plaintiffs, during the period from 2017 to 2018, Nvidia concealed the extent to which its gaming graphics card revenues depended on cryptocurrency mining demand.

The lawsuit was initially filed by investors in 2018 and was dismissed in 2021. After an appeal for retrial, Nvidia’s appeal to the U.S. Supreme Court was not accepted, and the case has now officially received approval for collective litigation.

The plaintiffs argue that Nvidia generated over $1 billion in cryptocurrency-related revenue through GeForce gaming graphics cards but categorized most of it under the “gaming business” segment, thereby downplaying the risk warnings for investors. Investors accuse CEO Jensen Huang of downplaying the true scale of cryptocurrency demand at that time. Nvidia had previously claimed that cryptocurrency mining accounted for only a small part of the company’s business, with Gaming revenue primarily coming from gamers.

The plaintiffs pointed out that this approach left the company directly exposed to the risks of cyclical fluctuations in the cryptocurrency market. Especially after the company’s corrective disclosure in November 2018, the stock price dropped about 28.5% within two days.

More critically, the court referenced an internal email from Nvidia’s vice president in its ruling, considering it particularly persuasive evidence. The judge noted that an internal executive had stated, “The company’s stock price remained high precisely due to previous related statements,” indicating that those statements had an impact on the stock price.

In fact, as early as 2022, the U.S. SEC had accused Nvidia of not adequately disclosing the impact of cryptocurrency mining on its gaming business, believing that its financial reports for two quarters could mislead investors. Nvidia neither admitted nor denied the SEC’s allegations but agreed to pay a $5.5 million fine and reached a settlement.

The approved collective lawsuit covers investors who purchased Nvidia stocks between August 10, 2017, and November 15, 2018. The court plans to hold a case meeting on April 21, during which the judge will clarify the subsequent litigation process.

Once in cryptocurrency mining, Nvidia’s mining history

Let’s turn back to the 2017 bull market. Mining rigs were snatched up, chips were in short supply, and countless prospectors rushed into Bitcoin mining.

At that time, Nvidia was best known for its gaming graphics card business. However, as the prices of cryptocurrencies like Bitcoin and Ethereum skyrocketed, the graphics card market faced severe shortages, with Nvidia’s GPU products also in high demand, making it difficult for ordinary gamers to obtain them.

By 2020, a new bull market reignited the enthusiasm for mining. This time, Nvidia took the initiative to launch the CMP mining cards designed specifically for Ethereum mining to meet special demands, while imposing mining performance limits on the RTX 3080 aimed at gamers. Even so, it was difficult to curb miners’ fervent demand. According to Nvidia, in the first quarter of 2021 alone, CMP mining-specific chips reached a quarterly sales figure of $155 million, while the global market for independent graphics cards flowing into cryptocurrency mining was about $500 million during the same period.

It is evident that this mining boom allowed Nvidia to rake in substantial profits. However, the exact amount of revenue derived from miners has always been a mystery. In Nvidia’s financial reports, mining revenues were classified under the gaming segment, making it challenging for outsiders to accurately dissect its true structure.

Nevertheless, in terms of revenue, mining indeed “boosted” Nvidia at that time. In 2018 alone, Nvidia’s operating revenue reached $9.714 billion, a year-on-year increase of 41%, with the gaming business contributing over half (about $5.5 billion). Interestingly, during the same period, the mining company Bitmain, which had only been established for a few years, expanded rapidly, with profits approaching Nvidia at one point, and Nvidia was one of its suppliers.

However, this portion of revenue was significantly affected by the fluctuations of the cryptocurrency cycle. After the collapse of mining demand in 2022, it led to a decline in Nvidia’s sales and excess inventory, with the gaming business becoming a major drag on its overall performance, and the drop in GPU sales being a key reason. Interestingly, Nvidia’s CTO Michael Kagan openly stated in 2023 that cryptocurrencies would not bring anything useful to society, and that the emergence of ChatGPT was the “iPhone moment” in the AI field.

Subsequently, Nvidia’s rise in AI became widely known, becoming the strongest shovel seller in the AI era, selling new Tokens. Meanwhile, the mining companies that once profited easily have also begun to shift their focus toward AI business.