Nvidia Sued by Angry Investors for Misclassifying Crypto Revenue
A group of investors has sued Nvidia, alleging that they deliberately misled the wider market regarding the demand for GeForce products back in the cryptocurrency boom of 2017 – 2018. Back then, if you recall, GPU prices blew straight through the roof and stayed high for months.
According to these investors, Nvidia chose to deliberately misclassify revenue as being gaming-related when it knew otherwise. Nvidia factually made a number of statements indicating it believed cryptocurrency was a relatively small percentage of sales, with the absolute value of those sales represented in its “Crypto SKU” reporting.
This situation has been percolating for a while. Back in February 2019, I covered a report by RBC analyst Mitch Stevens, who argued Nvidia had underestimated its exposure to the cryptocurrency market by ~$1.3B.
The complaint alleges that Nvidia knew full well where its GPUs were going, and that it misled investors into thinking this revenue would continue into the future. The complaint details a series of reports supposedly detailing exactly how GPUs were being sold that were sent to CEO Jen-Hsun Huang on an ongoing basis.
If true, this would imply that Nvidia’s decision to dramatically raise prices with the Turing generation wasn’t an accident or a misread of the market, but a deliberate effort to upsell RTX as a permanent feature worth paying for.
The fact of the matter is, Nvidia hit the Turing launch with a lot of Pascal era cards on the market and had to clear them at the same time it was trying to launch its new card family. But part of what hurt it in the early days of Turing was its own decision to raise prices as part of the RTX debut.
That decision to raise prices has never made a ton of sense to me. Confining the cost increase to the RTX 2080 Ti would have worked just fine, but raising the RTX 2080 and 2070 prices to the degree Nvidia did effectively moved them up an entire price bracket. Gamers reacted by adopting Turing more slowly than Pascal. Nvidia later cut Turing prices when the AMD Radeon 5700 and 5700 XT launched, but there was always a question as to why they’d raised prices in the first place. If Nvidia misunderstood where its own revenue was coming from, it would make more sense for the company to have raised prices on its consumer GPUs.
Of course, there’s an alternative explanation: Nvidia may have known exactly where its revenue was coming from (as this complaint alleges), and have taken the opportunity to raise prices simply because it could. According to the complaint, data from GeForce Experience was used specifically to confirm how customers were using the GeForce cards they purchased. Supposedly, data gleaned from mining GFE showed that over 60 percent of GPU sales went to miners during the Class Period.
It seems unlikely that the crypto market wound down the way Jen-Hsun had expected — the glut of Pascal cards on the market at the end of 2018 and into 2019 were obviously a problem for Nvidia’s effort to raise Turing prices — but if the allegations in this complaint are true, Nvidia knew who it was selling GPUs to throughout the period.