US Supreme Court Poised to Allow Class-Action Lawsuit Against Nvidia Over Cryptocurrency Sales Misrepresentation.

The U.S. Supreme Court seems poised to allow a class-action lawsuit accusing Nvidia of misleading investors about its reliance on cryptocurrency mining for revenue. Filed in 2018 by a Swedish investment firm, the lawsuit claims Nvidia failed to disclose how significantly cryptocurrency sales contributed to its revenue during a period of rising crypto prices.

The case has garnered significant attention, as it represents one of two high-profile matters involving class-action lawsuits against major tech companies. Recently, the Court also deliberated over whether to dismiss a multibillion-dollar class action against Meta (Facebook) linked to the Cambridge Analytica privacy scandal. This legal action against Nvidia centers around whether investors were misled about the company’s business operations, particularly its connection to the volatile cryptocurrency market.

Legal Background: Nvidia’s Alleged Missteps

The lawsuit stems from a dramatic decline in Nvidia’s stock value, which plummeted by 28% after the profitability of cryptocurrency mining, a key revenue driver for the company, fell sharply. This stock drop followed Nvidia’s failure to disclose to investors that cryptocurrency mining had become an increasingly significant source of income for the company’s graphics processing units (GPUs), which were marketed primarily for gaming applications.

In 2022, Nvidia settled with the Securities and Exchange Commission (SEC) by agreeing to pay a $5.5 million fine. The SEC charged Nvidia for failing to reveal that a significant portion of its revenue was derived from the sale of GPUs used in cryptocurrency mining, which significantly impacted the company’s financial performance. However, in the settlement, Nvidia did not admit to any wrongdoing.

The Case Before the Supreme Court

The central issue at hand in the Supreme Court is whether the lawsuit, which was initially dismissed by a district court judge, should be allowed to move forward. The Ninth Circuit Court of Appeals in San Francisco ruled that the case could proceed, prompting Nvidia’s appeal to the Supreme Court. Nvidia argues that the case should be dismissed because it allegedly fails to meet the criteria set forth by the Private Securities Litigation Reform Act of 1995, which aims to prevent frivolous or baseless claims in securities fraud cases.

The legal team representing Nvidia, including prominent attorney Neal Katyal, presented their arguments before the justices, but their case appeared to struggle for support. During oral arguments, several justices, including Justice Elena Kagan, indicated that it was increasingly unclear why the Supreme Court should take up the case. Justice Kagan expressed doubts about the merits of Nvidia’s defense, stating, “It’s less and less clear why we took this case and why you should win it.”

Nvidia’s Role in the AI Boom and Its Financial Growth

Nvidia’s status as a leading tech company has grown significantly in recent years, especially in the field of artificial intelligence (AI). The company is now a key player in the development and deployment of AI systems, with its GPUs being essential for powering AI applications. This dominance in chip manufacturing, which has been bolstered by major investments from tech giants, has helped Nvidia cement its place as one of the most valuable firms in the stock market.

Nvidia's chips are crucial for training and running AI models, which have become increasingly in demand due to the rise of generative AI technologies. These technologies, which power applications such as document creation, image generation, and AI-powered personal assistants, have driven significant growth in Nvidia’s business, making it one of the largest companies in the S&P 500.

In 2024, Nvidia's market capitalization surpassed $3 trillion, cementing its position as a dominant force in the tech industry. The company’s forthcoming third-quarter earnings announcement is expected to further highlight its strong position in the AI and chip manufacturing sectors.

Biden Administration's Support for Investors

In this case, the Biden administration has thrown its support behind the investors, backing the argument that the lawsuit should proceed. This adds another layer of political dimension to the case, as the government’s stance could influence the Court’s decision on whether to allow the lawsuit to continue.

Related: UK Intervenes in $40 Billion Nvidia-Arm Takeover