Graphics chipmaker NVIDIA Corporation (NVDA) has agreed to pay $5.5 million to settle charges leveled by the Securities and Exchange Commission (SEC) that it failed to adequately inform investors about the demand cryptocurrency miners had placed on its graphics cards. Crypto mining involves obtaining rewards earned in cryptocurrency for verifying transactions on distributed blockchain ledgers.
The financial watchdog announced the charges on Friday, May 6, claiming that Santa Clara, California-based NVIDIA misled investors by failing to report that crypto mining had generated a significant amount of revenue growth in two consecutive quarters during its 2018 fiscal year from the sale of its graphics processing unit (GPUs) designed and marketed for gaming.
The chip maker’s gaming segment posted a year-over-year (YOY) surge in revenue of 52% and 25% in the second and third quarters of that year.
"NVIDIA's disclosure failures deprived investors of critical information to evaluate the company's business in a key market," said Kristina Littman, chief of the SEC Enforcement Division's Crypto Assets and Cyber Unit. "All issuers, including those that pursue opportunities involving emerging technology, must ensure that their disclosures are timely, complete, and accurate," she added.
In March 2021, at the height of a crypto bull market, NVIDIA released a new series of semiconductors called Cryptocurrency Mining Processor (CMP), specifically designed for mining Ether (ETH), the digital token that powers the Ethereum blockchain. Ether’s mining algorithms work particularly well on graphics cards—the chips the company is best known for. The semiconductor maker has also added software to its gaming graphics cards, which prevents them from being used for crypto mining.
During the pandemic, NVIDIA’s graphics cards were in hot demand as consumers snapped them up to upgrade their gaming PCs while spending more time at home during shutdowns. Added demand from crypto miners meant the company’s graphics chips were in extremely short supply throughout 2020 and early 2021.
While gaming continued to make up the lion’s share of NVIDIA’s revenue in its most recently reported quarter (45%), sales for its CMP chips slumped sharply. The company disclosed that its crypto-mining hardware revenue declined 77% between the third and fourth quarters of 2021 as demand fell away in line with plunging cryptocurrency prices. Investors will get their next update on the chip maker’s CMP sales when it reports earnings on May 25. Conditions are likely to have remained challenging, given both Bitcoin (BTC) and Ether are trading down around 30% since the start of the year.
NVIDIA shares shed 0.9% Friday, May 6, to their lowest level since last July. Year to date (YTD), the stock has fallen 36.5%, underperforming the iShares Semiconductor ETF (SOXX) by around 12% and the tech-laden Nasdaq by 14%.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.
Securities and Exchange Commission. "SEC Charges NVIDIA Corporation With Inadequate Disclosures About Impact of Cryptomining."
CNBC. "NVIDIA Didn't Tell Investors Enough About Effects of Crypto Mining on Its Business, SEC Says."
CNBC. "NVIDIA Announces New Chips Designed for Mining Ethereum as the Cryptocurrency Hits Record Highs."
Zacks. "NVIDIA (NVDA) Q4 Earnings Beat Estimates, Revenues Surge Y/Y."
Decrypt. "NVIDIA Crypto Mining Processor Revenue Slumps 77% to $24M in Q4 2021."
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