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Upset Investors Accuse Nvidia of Masking $1 Billion in Mining GPU Revenue as Gaming

Upset investor after stocks didn't maintain value.
(Image credit: Shutterstock)

Back in 2017 when cryptocurrency was all the hype, people were buying every graphics card they could get their hands on, which was quite the party for AMD and Nvidia. Now, it looks like Nvidia is getting sued by some upset investors who claim Nvidia mislead them by reporting crypto revenue as gaming revenue, according to a report at The Register.

The original lawsuit was started in 2017, but it is only this week that the actual complaint has been filed in California. 

During the crypto-craze, coin miners would buy up every GPU they were able to obtain, which lead to massive shortages and severely increased the prices of graphics cards to levels at which gamers wouldn't be buying them anymore. 

"Sales data demonstrated that, throughout 2017, 60% to 70% of NVIDIA's GeForce revenue in China came from sales to crypto-miners, not gamers." reads the complaint. Such figures are similar elsewhere around the world, though likely varied a little depending on the popularity of mining and electricity prices. It's also worth noting that the Chinese market accounted for the majority of Nvidia's sales.

Analysts say that the under-reporting of GPUs for the crypto market lands somewhere around the $1.13-billion mark, and when the crypto mining market started showing signs of bust, Nvidia's stock price also dropped significantly.

But, the GPUs were gaming GPUs, right?

Of course, you're probably thinking something along the lines of, "But the GPUs were gaming hardware, what's wrong with putting them in the books under the gaming division?"

We wouldn't blame you for thinking this, but the investors disagreed. According to the complaint, Nvidia specifically marketed the GPUs for mining, and with the sales data available, it's clear where the GPUs were going. The issue the investors had was that Nvidia wasn't reporting this data, rather stating that its GeForce division was strong and that it would maintain stability once the crypto bubble cooled down.

Nvidia Handled the Crypto Situation Well

Both Nvidia and AMD's earnings soared during the crypto bubble, which doesn't come as a surprise. However, Nvidia and AMD responded differently to the bubble. Nvidia never confirmed whether it boosted production to meet demand, and even if it did a little, the aftermath shows that it couldn't have been a huge boost.

AMD on the other hand, for a brief moment, had perhaps a bit too much faith in Crypto and boosted production. This worked out for a while, but when the bubble popped it was suddenly stuck with an inventory of Polaris GPUs which, to this day, it is unable to sell. Remember the Radeon RX 570 and 580 GPUs that were selling for well north of $600 apiece, if not more? Have a look on NewEgg, they're still selling for as little as $120 (and have been for more than a year!) and even come with free goodies as incentives. Of course, they're old cards at this point and no longer worth anything near their original MSRP, but typically GPUs this old wouldn't be available on the market at all anymore.

How Will Nvidia Respond?

According to the report on The Register, Nvidia hasn't responded to the allegations. There are a number of ways this can pan out, but at the end of the day we don't expect much will come from the complaint. 

Nvidia's revenues were divided up into five segments: Gaming, Professional Visualization, Datacenter, Auto, and OEM & IP. Given these categories, it's only logical that GPUs that were engineered and built for gaming would be reported as part of the Gaming division, even if a whole lot of people were using them for something else.

Everybody knew that the gaming GPUs were being used for mining, and therefore also that the inflated gaming division numbers weren't going to last. As an investor, you have a responsibility to yourself to research what you're investing in. You shouldn't buy a product simply because the manufacturer says it's the best, so why would that be any different when buying shares?

  • Sedare
    Their stocks don't seem to be suffering yet as a result. Wonder if as this gains traction that will happen. Nvidia has been on the uptick for years. Hell only 4-5 years ago they were $36/share.,
  • Co BIY
    Lawyers, Shakespeare said.something about them...

    Suing one of the most successful companies in the world for a highly profitable period in it's recent history allegedly on behalf of investors. This is the kind of abusive (frivolous is too kind) civil case where a "loser pays" rule is needed. They are damaging the company to the detriment of current owners for parasitic gains that make the world poorer.
  • TerryLaze
    So how was nvidia (or amd for that matter) supposed to be able to distinguish how many of the GPUs were sold to miners and how many to gamers.

    Wouldn't the investors be just as much required to know about mining as the companies that produce the GPUs?

    If you know about mining you can subtract normal sales from current sales by yourself even as an investor.
  • gamergeek
    I remember back when this was going on seeing some GPUs specifically for mining, as in they had no video output. Don't know if NVIDIA was involved with those or if it was all third parties, but if they were and these are the ones that were incorrectly labeled as gaming sales I could kind of see the investors point.
  • Integr8d
    Fanboys will be up in arms and the author's last paragraph is a copout. The point, as stated much earlier, is that their stock tanked b/c of the drop in crypto. They knew who was buying their GPUs, for what reason and were marketing specifically toward that use. To try to hide that obvious bubble and cost shareholders money is worth some discovery.
  • Joe Caldwell
    I checked Nvidia's Form 10Ks and 10Qs filed with the Securities Exchange Commission during the time period in question. Nividia reported specific revenue effects and discussed the increased revenue from sales related to cryptocurrency mining to the SEC in those public documents. Based on Nvidia's disclosure, and the numerous warnings in the press about the risk associated with cryptocurrency I believe any investor not aware of the related risk was asleep at the wheel. Certainly any securities analyst worth his/her salt would have seen this risk.
  • Chung Leong
    gamergeek said:
    I remember back when this was going on seeing some GPUs specifically for mining, as in they had no video output.

    Those were booked under PC OEM sales. At issue here are actual gaming cards. How many were bought for cryptocurrency mining? At some point an executive at Nvidia must have posed that question. And I imagine a tech guy producing an estimate based on software telemetry.

    My prediction: Nvidia will settle the case prior to discovery.
  • TheOtherOne
    As usual the real winner will be lawyers. They never say no to any job specially when offered by clueless buffoons with some money to waste.