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NVIDIA is set to face a class action lawsuit following a US federal court ruling that investors can press claims that the company misinterpreted the level of its exposure to cryptocurrency-related revenues, depending on sales associated with crypto mining during 2017-2018.
A California federal judge has passed a motion to classify against NVIDIA and its CEO, Jensen Huang. The decision does not clarify the issue of liability, but empowers the plaintiffs as the case goes to trial.
The case focuses on the claims that NVIDIA did not reveal its reliance on the demand to mine cryptocurrencies in 2017-2018 as a primary factor in its sale of gaming GPUs, especially GeForce graphics cards.
Investors argue that NVIDIA concealed over $1 billion in GPU sales tied to crypto mining recorded under its gaming segment. According to the plaintiffs, this classification concealed the vulnerability of the company to the volatile crypto market.
Although NVIDIA says that the crypto-related sales were only a minor part of its business, the lawsuit claims that the substantial amount of demand at the time was being fueled by miners.
One of the most important aspects of the decision was that NVIDIA failed to demonstrate that its disclosures did not affect its stock price.
The court referred to internal communications, such as an email written by one of the senior executives that indicated that the stock valuation of NVIDIA was still high because of previous statements regarding its sources of revenue.
This evidence has been critical to the ruling, as it showed that investors had the potential to use information that was not always accurate when making investment decisions.
The company’s exposure to crypto demand became clearer in late 2018. In November 2021, NVIDIA announced reduced gaming revenues, which the company attributed to the declining crypto-related demand and the overstocking of distribution channels.
After this, NVIDIA’s shares plunged over 28.5% in two trading sessions, underscoring the sensitivity of the market to the underreported crypto exposure.
In 2022, the US Securities and Exchange Commission fined NVIDIA $5.5 million as it did not disclose the effect of cryptocurrency mining on its gaming business.
Initially filed in 2018, it was dismissed in 2021, before being reinstated on appeal. The effort by NVIDIA to take the case to the Supreme Court failed, and the case was allowed to go on.
Also Read: Will NVIDIA Maintain Its Lead in the Changing AI Market?
The certified class includes investors who purchased NVIDIA stock between August 10, 2017, and November 15, 2018. The court will outline the next steps during a case management conference set for April 21.
Although the matter is uncertain, the case highlights the increased questioning of corporate disclosure in emergency sectors such as cryptocurrency.
