Nvidia Targeted With Class Action Lawsuits Over Crypto Crash

The Schall Law Firm, which specializes in securities class-action lawsuits and shareholder rights litigation, joined other firms in filing class action lawsuits against Nvidia. The pending litigation claims Nvidia made false and misleading statements to its shareholders regarding how it could manage reduced demand from the cryptocurrency market. 

Last year's cryptocurrency craze sent PC component pricing into the stratosphere as everyone from casual users to massive Chinese cryptocurrency mining outfits snapped up GPUs at an astounding rate. That led to shortages and price gouging in the graphics market and had the knock-on effect of increased prices for other components, as well.

AMD responded to the increased GPU demand by boosting production, while Nvidia began stuffing the channel to help push pricing back to sane levels. But then the crypto craze fizzled as the value of Bitcoin plunged, dragging down the other virtual currencies. Suddenly a flood of used graphics cards hit the market at low prices, exacerbating the reduced demand in retail channels. That left Nvidia with "one to two quarters" of oversupply for some of its graphics cards, most notably the GTX 1060. The oversupply purportedly delayed the release of the Turing 2060 cards and also led to the first of many punishing rounds of losses for Nvidia in the stock market.

Now the Schall Law Firm is encouraging incensed investors who have lost more than $100,000 (£77,560, $140,330 AU) to join its class-action lawsuit, saying:

According to the Complaint, the Company made false and misleading statements to the market. NVIDIA touted its ability to monitor the cryptocurrency market and make rapid changes to its business as necessary. The Company claimed to be “masters at managing our channel, and we understand the channel very well.” NVIDIA also claimed to the market that any drop off in demand for its GPUs amongst cryptocurrency miners would not negatively impact the Company’s business because of strong demand for GPUs from the gaming market. Based on these facts, the Company’s public statements were false and materially misleading throughout the class period. When the market learned the truth about NVIDIA, investors suffered damages.

Much of the lawsuit hinges on Nvidia's messaging around its ability to predict and react to changes in the cryptocurrency market, but that's a difficult proposition given the dynamics of modern cryptocurrency mining. Miners often use graphics cards for multiple purposes, such as gaming for enthusiasts and cloud applications for commercial users, so gauging a customers' intent when they purchase a graphics card is nearly impossible.

The lawsuit against Nvidia for its messaging is one of several [1,2,3], which only adds to the company's woes. Since October 1, Nvidia's stock has lost 53% of its value due to the crypto crash and the US trade war with China (the Chinese market accounts for ~20% of Nvidia's sales). Several of the company's customers, like Apple, Google, Amazon, and Facebook, also announced they are developing their own AI chips, seemingly threatening Nvidia's stranglehold on the lucrative data center GPU market. Intel's new graphics cards and AMD's 7nm data center Radeon Instinct GPUs also loom on the horizon, so the company is beset by challenges on all sides. 

AMD has also suffered at the hands of the stock market due to its oversupply of graphics cards, but its diversified portfolio of both CPUs and GPUs has helped insulate the company from extreme losses. Meanwhile, Nvidia is solely reliant upon graphics technology.

Nvidia has a spate of new Turing cards on the market, with more, like the GeForce RTX 2060, coming to market soon. The latest industry speculation predicts the RTX 2060 will launch on January 7th, which means that Nvidia has likely worked through most of its excess GTX 1060 inventory. In either case, the pending lawsuits suggest Nvidia's oversupply will continue to have repercussions over the months to come.