Key Takeaways
- American chip manufacturer Nvidia’s appeal in a class action lawsuit by shareholders over its revenue from crypto mining was dismissed by the Supreme Court, sending the case back to the lower court. The company was fined $5.5 million by the SEC in 2021 for violating federal law.
- The lawsuit filed in 2018 alleges the company violated the Federal Securities Act after it hid the extent to which its revenue growth between 2017 and 2018 stemmed from GPUs used for crypto mining rather than gaming. At the time, Nvidia disclosed missing revenue projections due to the crypto market crash, resulting in its stock plummeting nearly 30%.
- Nvidia is also under investigation in China for its compliance with the U.S. trade sanctions, which restricted the sale of semiconductor technology in the country. Beijing alleges that the chipmaker violated its sales agreement and is currently looking at a hefty $1.04 billion fine, amounting to 10% of its 2024 revenue.
- Despite the legal challenges, Nvidia’s stock continues to climb, surging 195% year-to-date. Earlier this year, it surpassed Apple in market cap to become the most valuable company in the world.
The U.S. Supreme Court has dealt global chipmaking giant Nvidia with a major blow in its attempt to stop a 2018 class action lawsuit by shareholders over its crypto revenues. The higher court’s decision follows a November hearing where justices discussed whether the case raised legal issues substantial enough to merit an intervention. Consequently, the Supreme Court kept the earlier ruling of a lower court permitting the class action lawsuit to proceed.
Nvidia’s Appeal In Class Action Lawsuit Over Hidden Crypto Revenue Dismissed By The Supreme Court
In the lawsuit, Nvidia shareholders claim that between 2017 and 2018, CEO Jensen Huang had hidden the extent to which the chipmaker’s record-breaking revenue growth relied on the sale of its GeForce GPUs for crypto mining rather than gaming. However, Nvidia argued that the plaintiff’s case lacked sufficient detail to advance to the evidence-gathering phase of the legal procedure.
The case stems from 2018 when the crypto market crashed and Nvidia faced significant economic challenges. In November of that year, the company disclosed missing revenue projections, causing its stock to plummet by 28% in two days. At the time, Huang attributed the revenue shortfall to a “crypto hangover”.
Shareholders charged the company for violating the Securities Exchange Act of 1934, claiming that it downplayed the portion of its revenue growth from crypto-related activities during that period. They argued that by hiding the essential information, Nvidia deceived investors and analysts from assessing the effects of crypto mining on its business and knowing more about the nascent field.
Two years ago, Nvidia paid $5.5 million in fines to the Securities and Exchange Commission (SEC) for failing to disclose the effect the crypto sector had on its gaming chip business in 2018 and 2019. While the class action lawsuit was dismissed by a California judge in 2021, it was revived shortly after by the 9th U.S. Circuit Court of Appeals in San Fransisco.
The chip manufacturer sought the Supreme Court’s help to uphold the Californian judge’s dismissal ruling, arguing that allowing the case to continue had “national consequences” and would “create an easy roadmap for plaintiffs to evade” the Securities Litigation Reform Act – which provides safeguards against frivolous lawsuits.
However, Supreme Court Justice Sonia Sotomayer disagreed with Nvidia’s claim, calling the petition “concerning”. The highest court in the country deemed that a class action lawsuit against the tech giant was too narrow for it to take up. The case will now return to the 9th Circuit Court.
Nvidia May Be Forced To Pay Over $1 Billion In Fines To China Over Compliance With U.S. Trade Sanctions
Nvidia is also embroiled in another legal challenge, this time in China, where the State Administration for Market Regulation (SAMR) launched an antitrust lawsuit against the company for irregularities in its acquisition of Mellanox Technologies – a company specializing in the supply of high-performance computing, cloud services, and enterprise data centers.
The deal was approved by Beijing in 2020 under the strict guidelines that Nvidia supply its GPUs and interconnected products to the Chinese market on “fair, reasonable, and non-discriminatory terms” while ensuring compatibility with hardware from other manufacturers.
The probe is Beijing’s response to Nvidia’s compliance with export restrictions placed on the country by the U.S., which limited the supply of advanced GPUs. SAMR accuses the company of breaching its conditions tied to its Mellanox acquisition. If proven guilty, then Nvidia could face fines of up to $1.03 billion, which is equivalent to 10% of its 2024 Chinese revenue. This could be one of the largest antitrust fines ever levied against a company in the country.
The lawsuit is part of China’s broader retaliation against Washington’s trade policies that imposed strict export restrictions on semiconductor technology, citing national security risk. Nvidia is caught in the crossfire as it is a key player in the fields of AI and high-performance computing. The sanctions have also limited its supplies to China, its largest global market.
Nvidia Surpasses Apple To Become Most Valuable Company In The World With Market Cap Exceeding $3 Trillion
Despite these legal challenges, Nvidia’s stock has continued to soar and is up nearly 190% year-to-date. This surge was driven by strong demand for its GPUs in crypto mining, particularly in the maintenance of the Bitcoin network. Its 4000-series GPUs have outperformed offerings from chief rival AMD in profitability rates, gaining significant market share.
The company’s financial report showed a 95% year-over-year revenue increase in Q3 2024, reaching $35.1 billion. Its Data Center segment posted growths of 111%, and in Q4, the revenue is forecast to hit $37.5 billion.
Earlier this, Nvidia surpassed Apple to become the most valuable company in the world, surpassing a market cap of $3 trillion to set a new benchmark in the tech industry. The chipmaker is now focusing on diversifying its business and has announced plans to develop and provide infrastructure for humanoid robots.
At the time of writing, Nvidia (NVDA) stock is trading on the Nasdaq exchange at $134.25 – down 2.25% today.
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