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

Original Author: Nancy, PANews

Recently, NVIDIA has been collectively sued by investors, accused of concealing over $1 billion in cryptocurrency mining revenue, drawing market attention.

This long-standing lawsuit has once again shifted market focus back to the crazy gold rush from back in the day. The current AI empire NVIDIA was a direct beneficiary of this frenzy.

Accused of hiding over $1 billion in mining revenue, years-long class action lawsuit officially moves forward

A U.S. federal judge has approved a class action 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 revenue depended on cryptocurrency mining demand.

This 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 class action approval.

The plaintiffs argue that NVIDIA achieved over $1 billion in cryptocurrency-related revenue through GeForce gaming graphics cards but accounted for most of it under the “gaming business” segment, thereby downplaying risk warnings to investors. The investors accuse CEO Jensen Huang of downplaying the true scale of cryptocurrency demand at that time. Meanwhile, NVIDIA had consistently claimed that cryptocurrency mining only accounted for a small portion of the company’s business and that Gaming revenue primarily came from gamers.

The plaintiffs point out that this practice exposed the company directly to the risks of volatility in the cryptocurrency market cycles. Especially after the company’s corrective disclosures in November 2018, its stock price dropped approximately 28.5% within two days.

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

In fact, as early as 2022, the U.S. SEC had accused NVIDIA of failing to adequately disclose the impact of cryptocurrency mining on its gaming business, suggesting that its financial reports for two quarters might 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 class action covers investors who purchased NVIDIA stock between August 10, 2017, and November 15, 2018. The court plans to hold a case conference on April 21, at which time the judge will clarify the subsequent trial process.

Once involved in crypto mining, NVIDIA’s mining history

Let’s turn back to the bull market of 2017. Mining rigs were in high demand, chips were in short supply, and countless prospectors rushed to 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 a serious supply shortage for an extended period. Naturally, NVIDIA’s GPU products were also in high demand, leading to ordinary gamers struggling to find cards.

By 2020, a new round of the bull market reignited mining enthusiasm. This time, NVIDIA took the initiative to meet the special demand for Ethereum mining by launching CMP mining cards designed specifically for mining and limiting the mining performance of the RTX 3080 aimed at gamers. Even so, it was difficult to curb the fervent demand from miners. According to NVIDIA, in the first quarter of 2021, the sales revenue from CMP mining-specific chips alone reached $155 million, while the global market for independent graphics cards flowing to crypto mining was about $500 million during the same period.

It is evident that this mining boom allowed NVIDIA to make substantial profits. However, the exact portion of this revenue attributable to miners has always been a mystery. In NVIDIA’s financial reports, mining revenue was categorized under the gaming segment, making it difficult for outsiders to accurately dissect its true structure.

But from a revenue standpoint, mining indeed “lifted” NVIDIA at that time. In 2018 alone, NVIDIA’s operating revenue reached $9.714 billion, an increase of 41% year-over-year, with over half (about $5.5 billion) contributed by the gaming business. Interestingly, during the same period, the mining company Bitmain, which had only been established for a few years, was rapidly expanding, with profits once approaching those of NVIDIA, which was one of its suppliers.

However, this portion of revenue was highly affected by the fluctuations of the cryptocurrency cycle. After the collapse of mining demand in 2022, NVIDIA also experienced a decline in sales and excess inventory, with the gaming business becoming a major drag on its overall performance, and declining GPU sales being one of the significant reasons. Interestingly, NVIDIA’s CTO Michael Kagan openly stated in 2023 that cryptocurrencies would not bring anything useful to society, with the emergence of ChatGPT being 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 once-lucky mining companies also began to shift their focus to AI business.