Nvidia's old case reexamined, accused of hiding $1 billion in "mining" income—A secret chapter in the AI giant's history

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Author: Nancy, PANews

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

This long-standing lawsuit has once again redirected market focus to the frenzied gold rush of yesteryears. Today’s AI empire, Nvidia, was a direct beneficiary of that frenzy.

Accused of hiding over $1 billion in mining revenue, the collective lawsuit officially progresses after years.

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 revenue depended on cryptocurrency mining demand.

The lawsuit was initially filed by investors in 2018 and was dismissed in 2021. It was later appealed for retrial, and Nvidia’s appeal to the U.S. Supreme Court was not accepted, with the case now formally granted collective lawsuit approval.

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 risk warnings to investors. Investors allege that CEO Jensen Huang downplayed the true scale of cryptocurrency demand at that time. Nvidia had previously claimed that cryptocurrency mining constituted only a small portion of the company’s business, with Gaming revenue primarily coming from gamers.

The plaintiffs pointed out that this practice exposed the company directly to the risks of cryptocurrency market cycle fluctuations. Particularly after the company’s corrective disclosure in November 2018, its stock price fell by about 28.5% within two days.

More crucially, the court referenced an internal email from an Nvidia vice president in its ruling, considering it particularly compelling evidence. The judge noted that an internal executive had stated, “The reason the company’s stock price remained high was due to previous related statements,” indicating that such comments had impacted 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 might mislead investors. Nvidia neither admitted nor denied the SEC’s accusations but agreed to pay a $5.5 million fine and reached a settlement.

The approved collective lawsuit 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 point the judge will clarify the subsequent litigation process.

Nvidia’s Mining History in the Crypto Gold Rush

Let’s go back to the 2017 bull market. Mining rigs were in high demand, 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, with the skyrocketing prices of cryptocurrencies led by Bitcoin and Ethereum, the graphics card market faced severe shortages for an extended period. Nvidia’s GPU products were naturally in high demand, even leading to a scarcity for ordinary gamers.

By 2020, a new bull market reignited mining enthusiasm. This time, Nvidia took proactive measures by launching CMP mining cards specifically designed to meet the special demand for Ethereum mining, while also imposing mining performance limits on the RTX 3080 aimed at gamers. Even so, it was difficult to curb the miners’ fervent demand. According to Nvidia, in the first quarter of 2021, CMP mining-only chips achieved sales of $155 million for that quarter, while the global market for standalone graphics cards flowing to cryptocurrency mining was approximately $500 million during the same period.

It is evident that this mining craze allowed Nvidia to reap substantial profits. However, how much of this revenue came from miners has always been a mystery. In Nvidia’s financial reports, mining revenues were categorized under the gaming segment, making it challenging for outsiders to accurately dissect its true structure.

But from the revenue perspective, 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 more than half (approximately $5.5 billion). Interestingly, Bitmain, a mining company that had only been established for a few years at that time, expanded rapidly, and its profits once approached Nvidia, which was one of its suppliers.

However, these earnings were significantly affected by the fluctuations in the cryptocurrency cycle. After the plummet in mining demand in 2022, Nvidia’s sales also declined, leading to excess inventory, with the gaming business becoming the main drag on its overall performance, and the drop in GPU sales being one of the major reasons. Interestingly, Nvidia’s CTO Michael Kagan candidly stated in 2023 that cryptocurrency would not bring anything useful to society, while the emergence of ChatGPT represents the “iPhone moment” in the AI field.

Subsequently, Nvidia’s rise in AI became widely known, making it the strongest “shovel seller” in the AI era, launching new tokens. Meanwhile, the once effortlessly profitable mining companies began to shift their focus towards AI businesses.