California Court Clears $1B NVIDIA Crypto Revenue Lawsuit

Key Takeaways:

• One of the federal courts in the United States gave a green light to a class-action lawsuit filed against NVIDIA, enabling investors to challenge revenues associated with crypto that are yet to be revealed. 
• Plaintiffs claim the company had misrepresented the extent to which its sales of gaming GPUs relied on crypto mining between 2017 and 2018. 
• The ruling does not determine the existence of liability, but is a step to move the case to trial and bring scrutiny to the disclosure of crystal exposure. 

A district court in the U.S. has brought a long-running dispute relating to crypto-tied revenue of NVIDIA to a new stage. Investors now can proceed the lawsuit together, sharpening how companies report demand from crypto in the previous market cycle.

The Northern District of California issued the granting motion for class certification in a securities lawsuit against NVIDIA and CEO Jensen Huang. At the same time, the court also denied motion to exclude important expert testimony tied to damages.

The case centers on investors who bought NVIDIA stock between August 2017 and November 2018, a period when crypto mining demand surged alongside rising token prices.

Class certification gives these investors an opportunity to sue as a collective and not an individual. Although it does not establish Vincentiousness of NVIDIA violating securities law, it materially increases the amount of money at risk and increases the speed at which the case is likely to go to trial.

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NVIDIA plaintiffs say that the company lied about the contribution of crypto mining to its operations, especially in its rapidly expanding gaming division.

The company repeatedly indicated, via filings, that:

• Crypto-related revenue was a minor part of total sales 
• The mining needs were mostly segregated in a different OEM segment 
• Core consumer demand led to the growth of gaming 

Investors say the statements made a misleading impression. They claim a big portion of the sales occurring due to mining actually proceeded through GeForce gaming GPUs, which means NVIDIA is susceptible to crypto market swings.

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In 2017, Ethereum – a new cryptocurrency, exploded, putting pressure on GPU supply sources used for coin mining activities. Prices spiked and miners needed to buy a lot of high-performance chips.

NVIDIA even introduced GPU lines specialized for coin mining but plaintiffs say this did not reflect adequately the real origin of demand and revenue.

When crypto prices dropped in 2018, demands from miners decreased strongly. The lawsuit claims that NVIDIA was left with excess inventory and suffered declined revenue, contrast to the previous statements on stable demand and effective inventory management ability.

Investors point to late-2018 disclosures as a turning point, when NVIDIA acknowledged weaker gaming performance and slower inventory clearance after the crypto downturn.

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