Case 4:18-cv-07669-HSG Document 113 Filed 06/21/19 Page 1 of 74
`
`
`
`KESSLER TOPAZ
` MELTZER & CHECK, LLP
`Andrew L. Zivitz (pro hac vice)
`(azivitz@ktmc.com)
`Matthew L. Mustokoff (pro hac vice)
`(mmustokoff@ktmc.com)
`Eric K. Gerard (pro hac vice)
`(egerard@ktmc.com)
`280 King of Prussia Road
`Radnor, PA 19087
`Tel:
`(610) 667-7706
`Fax:
`(610) 667-7056
`
`Counsel for Lead Plaintiff E. Öhman J:or Fonder AB and
`Co-Lead Counsel for the Class
`
`BERNSTEIN LITOWITZ BERGER
` & GROSSMANN LLP
`Jonathan D. Uslaner (Bar No. 256898)
`(jonathanu@blbglaw.com)
`John C. Browne (pro hac vice)
`(johnb@blbglaw.com)
`Michael D. Blatchley (pro hac vice)
`(michaelb@blbglaw.com)
`2121 Avenue of the Stars, Suite 2575
`Los Angeles, CA 90067
`Tel: (310) 819-3472
`
`Counsel for Lead Plaintiff Stichting Pensioenfonds PGB and
`Co-Lead Counsel for the Class
`
`[Additional counsel listed on signature page.]
`
`In re NVIDIA CORPORATION
`SECURITIES LITIGATION
`
`
`
`This Document Relates to: All Actions.
`
`UNITED STATES DISTRICT COURT
`FOR THE NORTHERN DISTRICT OF CALIFORNIA
`OAKLAND DIVISION
`Case No. 4:18-cv-07669-HSG
`
`CONSOLIDATED CLASS ACTION
`COMPLAINT FOR VIOLATIONS OF THE
`FEDERAL SECURITIES LAWS
`
`DEMAND FOR JURY TRIAL
`
`Judge: Hon. Haywood S. Gilliam, Jr.
`Courtroom: 2
`
`
`
`
`Case No. 4:18-cv-07669-HSG
`
`CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL
`SECURITIES LAWS
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`
`
`
`

`

`Case 4:18-cv-07669-HSG Document 113 Filed 06/21/19 Page 2 of 74
`
`TABLE OF CONTENTS
`
`Page
`INTRODUCTION ...........................................................................................................................1
`JURISDICTION AND VENUE ......................................................................................................8
`PARTIES .........................................................................................................................................9
`FORMER EMPLOYEES REFERRED TO IN THE COMPLAINT ............................................10
`FACTUAL ALLEGATIONS ........................................................................................................11
`A.
`NVIDIA’s Reliance on Its Gaming Segment and China Market .......................................11
`B.
`Background on Cryptocurrency Mining ............................................................................13
`C.
`Defendants Repeatedly Deny the Importance of Sales to Cryptocurrency Miners in
`Driving NVIDIA’s Revenues ............................................................................................18
`Unknown to Investors at the Time, Defendants Knew that NVIDIA’s Gaming
`Revenues Were Largely Attributable to Cryptocurrency Mining Throughout the
`Class Period .......................................................................................................................22
`1.
`Internal Sales Data Throughout 2017 Reveals Surging Demand for
`GeForce GPUs by Crypto-Miners in NVIDIA’s Largest Market ..........................23
`Weekly Sales Reports to Key NVIDIA Executives, Including Defendant
`Fisher, Describe Booming Crypto-Related Demand for GeForce GPUs ..............25
`March 2017 Presentation to Defendant Fisher and Other Top Gaming
`Executives Warns of Growing Dependence on Crypto-Mining Demand .............26
`Bulk Purchases in China, the United States, and Russia Highlight the
`Popularity of GeForce GPUs Among Crypto-Miners ...........................................27
`Internal GeForce Experience Data Shows GeForce Gaming GPUs Being
`Used for Crypto-Mining ........................................................................................28
`September 2017 Presentation Quantifies GeForce Sales to Miners in China ........29
`January 2018 Licensing Agreement Revision Expressly Accommodates
`Crypto-Miners ........................................................................................................31
`Securities Analysts Corroborate NVIDIA’s Dependence on Crypto-Related
`GeForce Sales During the Class Period .............................................................................33
`Independent Expert Analysis Confirms That NVIDIA Vastly Understated Crypto-
`Related Sales throughout the Class Period ........................................................................34
`The Truth Emerges ............................................................................................................35
`
`D.
`
`E.
`
`F.
`
`G.
`
`2.
`
`3.
`
`4.
`
`5.
`
`6.
`7.
`
`
`
`I.
`II.
`III.
`IV.
`V.
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`
`
`
`
`
`Case No. 4:18-cv-07669-HSG
`i
`CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL
`SECURITIES LAWS
`
`

`

`Case 4:18-cv-07669-HSG Document 113 Filed 06/21/19 Page 3 of 74
`
`
`
`1.
`
`2.
`
`August 16, 2018: With Demand from Crypto-Miners Gone and Inventory
`Ballooning, Defendants Falsely Assure Investors That They Are “Masters”
`of Managing NVIDIA’s Channel...........................................................................35
`November 15, 2018: Investors Learn New Information Regarding
`NVIDIA’s Reliance on Crypto-Miners, Exposing a Glut of Unsold
`GeForce Inventory .................................................................................................38
`DEFENDANTS’ MATERIALLY FALSE AND MISLEADING STATEMENTS .....................42
`A.
`May 10, 2017 NVIDIA Annual Investor Day ...................................................................43
`B.
`August 10, 2017 Earnings Call ..........................................................................................43
`C.
`August 12, 2017 VentureBeat Interview ............................................................................44
`D.
`August 23, 2017 Form 10-Q ..............................................................................................45
`E.
`September 6, 2017 Citi Global Technology Conference ...................................................45
`F.
`November 9, 2017 Earnings Call .......................................................................................46
`G.
`November 10, 2017 VentureBeat Interview ......................................................................47
`H.
`November 21, 2017 Form 10-Q .........................................................................................47
`I.
`November 29, 2017 Credit Suisse Technology, Media and Telecom Conference ............48
`J.
`February 9, 2018 Barron’s Article.....................................................................................49
`K.
`March 26, 2018 TechCrunch Article .................................................................................49
`L.
`March 29, 2018 Mad Money Appearance ..........................................................................50
`M.
`August 16, 2018 Earnings Call ..........................................................................................50
`VII. ADDITIONAL ALLEGATIONS OF SCIENTER ........................................................................51
`VIII. PRESUMPTION OF RELIANCE .................................................................................................56
`IX.
`INAPPLICABILITY OF THE STATUTORY SAFE HARBOR .................................................57
`X.
`CLASS ACTION ALLEGATIONS ..............................................................................................58
`XI.
`CLAIMS FOR RELIEF UNDER THE EXCHANGE ACT..........................................................59
`XII.
`PRAYER FOR RELIEF ................................................................................................................61
`XIII.
`JURY DEMAND ...........................................................................................................................61
`
`
`VI.
`
`
`
`
`
`Case No. 4:18-cv-07669-HSG
`ii
`CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL
`SECURITIES LAWS
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`
`
`
`

`

`Case 4:18-cv-07669-HSG Document 113 Filed 06/21/19 Page 4 of 74
`
`
`
`Lead Plaintiffs E. Öhman J:or Fonder AB (“Öhman Fonder”) and Stichting Pensioenfonds PGB
`(“PGB,” and together with Öhman Fonder, “Lead Plaintiffs”) bring this action individually and on behalf
`of all others who purchased or otherwise acquired the common stock of NVIDIA Corporation
`(“NVIDIA” or the “Company”) between May 10, 2017, and November 14, 2018 (the “Class Period”),
`and were injured thereby.
`Lead Plaintiffs allege the following based upon personal knowledge as to themselves and their
`own acts and upon information and belief as to all other matters. Lead Plaintiffs’ information and belief
`are based on the ongoing independent investigation of their undersigned counsel. This investigation
`includes review and analysis of, among other things: (i) NVIDIA’s public filings with the U.S. Securities
`and Exchange Commission (“SEC”); (ii) research reports by securities and financial analysts; (iii) videos
`and transcripts of NVIDIA’s conference calls with analysts and investors; (iv) Company presentations,
`press releases, and reports; (v) news and media reports concerning NVIDIA and other facts related to this
`action; (vi) price and volume data for NVIDIA securities; (vii) information from consultations with
`relevant experts; and (viii) information provided by former NVIDIA employees, some of whom
`expressed concern about providing Lead Counsel with information for fear of retaliation by NVIDIA.
`Lead Counsel’s investigation into the factual allegations continues, and many of the relevant facts are
`known only by Defendants or are exclusively within their custody or control. Lead Plaintiffs believe that
`substantial additional evidentiary support is likely to exist for the allegations set forth herein after a
`reasonable opportunity for discovery.
`INTRODUCTION
`I.
`Defendant NVIDIA is a multinational technology company that purports to have invented
`1.
`in 1999 the graphics processing unit (“GPU”), a type of processor that electronics manufacturers
`incorporate into their devices, including graphics cards for video games. NVIDIA’s most popular
`product line is its “GeForce” brand of GPUs, a favorite among video-game enthusiasts (“gamers”).
`In early 2017, NVIDIA faced an unusual problem: its flagship product was flying off the
`2.
`shelves. Under normal circumstances, such a trend would be cheered. But Defendants knew that the
`spike in GeForce GPU sales was not sustainable. The enormous sales growth owed not to an increase in
`demand from gamers, NVIDIA’s traditional consumer, but rather from bands of online upstarts who were
`
`
`
`Case No. 4:18-cv-07669-HSG
`1
`CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL
`SECURITIES LAWS
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`
`
`
`

`

`Case 4:18-cv-07669-HSG Document 113 Filed 06/21/19 Page 5 of 74
`
`
`
`buying up the processors by the thousands and deploying them in massive datacenters to solve complex
`mathematical problems in pursuit of digital tokens called “cryptocurrencies.”
`These so-called “crypto-miners” were chasing a modern-day gold rush unfolding in
`3.
`cyberspace and based on an esoteric new technology called “blockchain.” Instead of picks and shovels,
`the crypto-miners relied on computing power and processors. They had discovered that GeForce GPUs
`were particularly adept at quickly processing the computations required by cryptocurrency mining—and
`at a fraction of the cost of more powerful chips designed for scientific and industrial settings.
`As the financial rewards of cryptocurrency mining escalated rapidly, so, too, did demand
`4.
`for GeForce GPUs, the crown jewel of NVIDIA’s all-important Gaming segment. The Gaming segment
`produced more revenues than the Company’s four other segments combined, with GeForce sales making
`up the lion’s share. Moreover, nowhere was cryptocurrency mining more popular than in China, where
`NVIDIA earned more than half of its revenues and made up to 50% of its worldwide GeForce sales.
`This confluence of skyrocketing demand for NVIDIA’s most important product in its largest market had
`the effect of supercharging the Company’s revenues.
`By early 2017, NVIDIA’s executive team in Santa Clara, California was awash in data
`5.
`showing that cryptocurrency miners were behind the burgeoning GeForce sales in China and elsewhere.
`Near the start of the year, the Company’s China sales team had begun tracking crypto-related GeForce
`sales based on transaction data provided by NVIDIA’s manufacturing partners. The data expressly
`identified GeForce sales to crypto-miners, who had begun to make bulk purchases of tens of thousands of
`GPUs at a time from these partners. Well before the start of the Class Period, the Company was
`consolidating this data in its internal sales database, of which NVIDIA’s executive team in the United
`States made ready use. Indeed, a former Senior Account Manager in China who was contacted by Lead
`Counsel stated that the U.S.-based executive team was “obsessed” with it. Furthermore, key U.S.
`executives received weekly sales reports aggregating GeForce sales to crypto-miners from the week
`before, supplemented by quarterly spreadsheets. This data reflected that, throughout 2017, 60% to 70%
`of NVIDIA’s GeForce revenue in China came from sales to crypto-miners.
`Among those who received this data were the head of NVIDIA’s Gaming segment and the
`6.
`GeForce business unit, Defendant Jeff Fisher, who reported directly to the Company’s CEO, Defendant
`
`
`
`Case No. 4:18-cv-07669-HSG
`2
`CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL
`SECURITIES LAWS
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`
`
`
`

`

`Case 4:18-cv-07669-HSG Document 113 Filed 06/21/19 Page 6 of 74
`
`
`
`Jensen Huang; Vice President Worldwide GeForce Sales John Milner, Fisher’s direct report; and Senior
`Director for China, David Zhang, who oversaw the Company’s colossal China market from its California
`headquarters.
`In March 2017, armed with this data, Fisher, Milner, and Zhang traveled to China and
`7.
`received a presentation from the sales team in which the explosion in cryptocurrency-related sales was
`addressed head-on. These executives were told that sales to crypto-miners had recently caused GeForce
`sales to nearly double in China. Fisher, however, told his team internally that the growing reliance on
`sales to miners was “dangerous.”
`Fisher’s remark was both historically accurate and prescient. NVIDIA’s chief rival,
`8.
`chipmaker Advance Micro Devices (“AMD”), had been burned in a cryptocurrency boom several years
`earlier, when it was AMD’s processors that miners preferred. AMD watched its sales numbers—and its
`share price—skyrocket as crypto-miners hoarded its GPUs, only to see both plunge when cryptocurrency
`prices crashed and demand from miners evaporated. The lesson from AMD’s experience was that
`cryptocurrency-related revenues were unreliable and unsustainable, as miners’ demand was directly
`linked to the wildly volatile prices of the cryptocurrencies for which they labored.
`In early 2017, watching the cryptocurrency markets again catch fire, NVIDIA internally
`9.
`feared a similar cycle as it became clear to Defendants that miners had turned to GeForce GPUs as their
`processor of choice. Yet its executives were not about to leave easy money on the table. They needed to
`find a way to capitalize on the white-hot demand from voracious miners, while assuring investors that the
`Company’s core Gaming business was well-immunized against the volatilities of cryptocurrency prices.
`In May 2017, NVIDIA launched a special GPU designed specifically for cryptocurrency
`10.
`mining (the “Crypto SKU”). Critically, NVIDIA did not report Crypto SKU sales in Gaming segment
`revenues, which made up more than 50% of NVIDIA’s sales year after year. Rather, the Company
`reported the Crypto SKU sales in the “Original Equipment Manufacturer & Intellectual Property”
`(“OEM”) segment, an ancillary catch-all segment that had historically contributed around 5% to 10% of
`Company revenues.
`In short, Gaming was a segment analysts and investors paid close attention to; OEM was
`11.
`not. Launching the Crypto SKU and reporting its sales in the OEM segment allowed NVIDIA to claim
`
`
`
`Case No. 4:18-cv-07669-HSG
`3
`CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL
`SECURITIES LAWS
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`
`
`
`

`

`Case 4:18-cv-07669-HSG Document 113 Filed 06/21/19 Page 7 of 74
`
`
`
`that any mining-related revenues were cordoned off in OEM, thus assuring investors that its cash-cow
`Gaming business was insulated from crypto-related volatilities. The strategy had its intended effect, with
`news outlets reporting that NVIDIA was “making the cards designed for this use [i.e., cryptocurrency
`mining] so that the surging digital currency demand doesn’t affect its ability to serve the lucrative PC
`gaming market.”
`Unbeknownst to the market, however, crypto-miners overwhelmingly favored the
`12.
`GeForce GPU to the newly launched Crypto SKU. In fact, the Crypto SKU lacked a crucial feature that
`rendered it far less appealing to miners than the GeForce: it had no port for video display. The lack of a
`display port rendered the Crypto SKU useless for anything but mining; unlike GeForce GPUs, they could
`not be used for Gaming. Thus, when mining became unprofitable as cryptocurrency prices declined,
`miners would have no secondary market of gamers on which to dump their idle hardware, precluding
`them from recouping any of the large upfront costs involved in setting up their operations. This feature
`ensured that most miners would prefer the GeForce to the Crypto SKU.
`13. While the market remained unaware of miners’ preference for GeForce GPUs, NVIDIA’s
`top executives had complete knowledge of the trend and took full advantage of the cover that the Crypto
`SKU provided. As the Company’s Gaming and overall revenues jumped dramatically each quarter
`during the Class Period, Defendants Fisher, Huang, and CFO Colette Kress repeatedly attributed the
`gains to strong demand from gamers—ignoring or falsely trivializing the sizable impact from crypto-
`miners. Similar claims appeared in the Company’s SEC filings.
`At the same time, Defendants regularly assured the market—often in direct response to
`14.
`analyst questions—that sales to miners consisted almost entirely of the Crypto SKU, claiming that
`NVIDIA satisfied the “vast . . . majority of the cryptocurrency demand out of that specialized product.”
`Indeed, the only revenues that Defendants publicly disclosed as cryptocurrency-related were sales of the
`Crypto SKU. Defendants’ message throughout the Class Period was that cryptocurrency was not a
`material driver of the Company’s revenue.
`In fact, Defendants repeatedly went out of their way to make misleading and false
`15.
`statements regarding the impact of cryptocurrency sales on NVIDIA’s financial performance—again,
`often in direct response to analyst questions. For example, when Defendant Huang was interviewed by
`
`
`
`Case No. 4:18-cv-07669-HSG
`4
`CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL
`SECURITIES LAWS
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`
`
`
`

`

`Case 4:18-cv-07669-HSG Document 113 Filed 06/21/19 Page 8 of 74
`
`
`
`VentureBeat in November 2017, he was explicitly asked whether “cryptocurrency is driving all of your
`success.” Huang rebuffed the idea, responding, “crypto is small for us but not 0. . . . It’s large for
`somebody else. But it is small for us.” Later that month, while attending a technology conference,
`Defendant Kress was asked by a Credit Suisse analyst about the impact of cryptocurrency-related
`demand on NVIDIA’s gaming revenues. She responded that it was “some small amount” but that the
`“majority” of the Company’s cryptocurrency-related revenues stemmed from the Crypto SKU. Time and
`time again during the Class Period, Defendants were questioned about the subject, and time and time
`again they stated that cryptocurrency revenues had only a “small” role in driving the Company’s
`impressive growth.
`These and other statements set forth below were false. As Defendant Kress later
`16.
`acknowledged, NVIDIA’s Gaming revenues had been irretrievably “tainted with cryptocurrency” and
`depended heavily on sales to miners. Defendants knew this when the Class Period began, and their
`attention never wavered. Indeed, the phenomenon was scrupulously tracked, quantified, and discussed in
`the internal sales database, weekly sales reports, and spreadsheets that top executives such as Defendant
`Fisher had been receiving since early 2017.
`In August 2017, Fisher, Milner, and Zhang commissioned a PowerPoint presentation from
`17.
`the China sales team that would provide an update on cryptocurrency mining in the Company’s largest
`market. The presentation, sent to Zhang and other senior executives in September, revealed the
`granularity with which NVIDIA was tracking these sales. Among other data, the slide deck noted that
`during the first eight months of 2017, 1.5 million GeForce GPU units had been sold to crypto-miners in
`China. The slide deck also detailed NVIDIA’s plan to directly target the largest miners in China, going
`so far as to list the top ten by name next to their cell phone numbers and projected monthly demand in
`thousands of units.
`Beyond these internal sales figures, Defendants used a software program that was bundled
`18.
`with the graphics cards to track how consumers were using their GeForce GPUs throughout the Class
`Period. The program, called “GeForce Experience,” transmitted usage data from users back to NVIDIA,
`enabling the Company to determine whether consumers were using each GPU for gaming or for mining.
`The software was widely adopted, with Defendant Fisher boasting that 100 million GeForce owners used
`
`
`
`Case No. 4:18-cv-07669-HSG
`5
`CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL
`SECURITIES LAWS
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`
`
`
`

`

`Case 4:18-cv-07669-HSG Document 113 Filed 06/21/19 Page 9 of 74
`
`
`
`GeForce Experience. It revealed widespread use of GeForce Gaming GPUs by crypto-miners. As the
`Senior Account Manager in China put it, “We actually know this data.”
`Defendants not only knew about, but encouraged large-scale crypto-mining with GeForce
`19.
`GPUs. In early 2018, NVIDIA announced that it had revised its End User License Agreement
`(“EULA”), prohibiting commercial datacenters from using GeForce GPUs unless they were used for
`crypto-mining. The move, viewed internally as a bald effort to push these entities into far more
`expensive non-gaming GPUs that the Company designed, reflected Defendants’ view that cost-sensitive
`mining operations could not be persuaded to make a similar shift—a belief confirmed by NVIDIA’s own
`salespeople, who had unsuccessfully tried to upsell miners into more expensive professional products in
`the past. As one former Senior Product Director put it, “they knew GeForce was being used for crypto,
`and there was no way they could convince [miners] to use a pro GPU, so they carved it out.” The
`accommodation was a “classic move,” which the Senior Director said “was almost guaranteed to have
`been done by Jensen [Huang] himself.”
`The façade of the Gaming segment’s invulnerable growth began to crumble in the spring
`20.
`of 2018, as the cryptocurrency markets started to weaken. With the prices of the currencies in freefall by
`the summer, crypto-mining became unprofitable, and the demand from miners dried up. So, too, did
`GeForce sales.
`On August 10, 2018, Defendants were forced to acknowledge that “probably . . . a great
`21.
`deal” of cryptocurrency miners had bought GeForce Gaming GPUs in recent months, revealing to
`investors that NVIDIA’s crypto-related revenues had not been contained in its OEM segment, but rather
`had a substantial—and negative—impact on its core Gaming business. Defendants also disclosed that
`GeForce inventories had ballooned more than 36% to $1.09 billion. NVIDIA’s share price fell on the
`news, with analysts blaming the drop on the collapse of cryptocurrency mining. Yet Defendants falsely
`reassured the market that the swelling inventory would not be a problem, as demand from gamers would
`pick up the slack created by the disappearance of crypto-related sales. Analysts again credited these
`assurances.
`On November 15, 2018, the full truth behind Defendants’ deception was revealed.
`22.
`Defendants announced that NVIDIA had missed analyst expectations for the third quarter and was
`
`
`
`Case No. 4:18-cv-07669-HSG
`6
`CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL
`SECURITIES LAWS
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`
`
`
`

`

`Case 4:18-cv-07669-HSG Document 113 Filed 06/21/19 Page 10 of 74
`
`
`
`revising its guidance for the fourth quarter to reflect a 7% decline year-over-year. Attributing the
`reversal to a “sharp falloff in crypto demand” for NVIDIA’s Gaming GPUs, NVIDIA revealed that it
`would make no shipments into the distribution channel of—and thus recognize no revenue for—the mid-
`range GeForce GPUs that miners had favored. The promised demand from gamers simply did not exist,
`and it became fully apparent to the market that, contrary to Defendants’ earlier representations,
`NVIDIA’s revenues were unduly dependent on cryptocurrency mining. On the news, NVIDIA’s stock
`plunged 28.5% over two trading sessions, falling from $202.39 to $144.70 per share on heavy trading
`volume.
`23. Market observers were shocked by the revelations. One analyst noted that the disclosures
`stood “in sharp contrast to the comments . . . at the last earnings call.” Another, from Deutsche Bank,
`stated that the results “call into question what the true growth rate of Gaming was/is,” while a reporter
`told Defendant Huang incredulously, “I . . . thought [cryptocurrency] was never really more than a tenth
`of your revenue.” Another observer was more blunt: “NVIDIA lied about its cryptocurrency earnings
`to avoid [a] stock crash,” positing that “the steep falls [in NVIDIA’s stock price] [we]re a strong
`incentive for Nvidia to mask large fluctuations in revenue.” The remarks echoed those of the former
`Senior Account Manager in China, who told Lead Counsel, “NVIDIA sure lied to everyone.”
`After the dust cleared, securities analysts sought to probe the extent to which NVIDIA’s
`24.
`Gaming revenues had relied on GeForce sales to crypto-miners during the Class Period. In
`January 2019, for example, RBC Capital Markets (“RBC”) produced a report that compared the
`$602 million in reported Crypto SKU sales in the OEM segment—the only revenues that Defendants had
`publicly attributed to crypto-mining—to what it believed the Company really had earned from the
`crypto-boom. The analysis concluded that NVIDIA had earned $1.95 billion from crypto-mining
`between April 2017 and October 2018. In other words, RBC found that Defendants understated crypto-
`related revenue by $1.35 billion.
`To follow up on these reports, which were generally supported by interviews of former
`25.
`employees conducted in recent months, Lead Plaintiffs retained an economic consulting firm, Prysm
`Group, specializing in cryptocurrency markets to conduct an independent analysis of NVIDIA’s crypto-
`related revenues. Like the RBC report, this analysis confirmed that NVIDIA had grossly understated its
`
`
`
`Case No. 4:18-cv-07669-HSG
`7
`CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL
`SECURITIES LAWS
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`
`
`
`

`

`Case 4:18-cv-07669-HSG Document 113 Filed 06/21/19 Page 11 of 74
`
`
`
`crypto-related revenues. The economists determined that the Company had earned at least $1.728 billion
`from sales to miners between May 2017 and August 2018—meaning that Defendants understated
`NVIDIA’s crypto-related GPU sales by approximately $1.26 billion, all of which was contained in the
`Company’s Gaming segment.
`These results, which are set forth below, demonstrate that Defendants falsely claimed,
`26.
`quarter after quarter, that the Gaming segment’s sales growth owed to strong organic demand from
`gamers while misleading the market into believing that NVIDIA’s dependence on cryptocurrency-related
`revenues was “small” and that any exposure to that inherently volatile demand was contained in its
`ancillary OEM segment. In truth, the gains had been ephemeral, due largely to an intense but transient
`source of demand that Defendants tracked fastidiously and knew about for months before the Class
`Period began, yet chose to hide from investors.
`
`2Q18
`
`
`Total
`
`FY 2019
`FY 2018
`1Q19
`2Q19
`4Q18
`3Q18
`NVIDIA’s Reported Revenues for Crypto SKU
`$70m
`$75m
`$289m
`$18m
`$150m
`$602m
`Prysm Group Analysis – All Cryptocurrency-Related Revenues
`$349m
`$299m
`$541m
`$364m
`$175m
`$1,728m
`Difference Between Reported Revenues for Crypto SKU
`and All Cryptocurrency-Related Revenues Calculated by Prysm Group
`$199m
`$229m
`$466m
`$75m
`$157m
`$1,126m
`
`
`
`Through this action, Lead Plaintiffs seek to hold Defendants accountable to NVIDIA’s
`27.
`shareholders for their deceit.
`JURISDICTION AND VENUE
`II.
`This Court has jurisdiction over the subject matter of this action under Section 27 of the
`28.
`Exchange Act, 15 U.S.C. § 78aa. In addition, because this is a civil action arising under the laws of the
`United States, this Court has jurisdiction under 28 U.S.C. §§ 1331 and 1337.
`Venue is proper in this District under 28 U.S.C. § 1391(b) and Section 27 of the Exchange
`29.
`Act, 15 U.S.C. § 78aa. NVIDIA is headquartered and conducts business in this District, and many of the
`
`
`
`Case No. 4:18-cv-07669-HSG
`8
`CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL
`SECURITIES LAWS
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`
`
`
`

`

`Case 4:18-cv-07669-HSG Document 113 Filed 06/21/19 Page 12 of 74
`
`
`
`acts and transactions that constitute violations of law complained of herein, including the dissemination
`to the public of untrue statements of material facts, occurred in this District.
`In connection with the acts alleged herein, Defendants, directly or indirectly, used the
`30.
`means and instrumentalities of interstate commerce, including the mails, interstate telephone
`communications, and the facilities of a national securities exchange.
`PARTIES
`III.
`Lead Plaintiffs
`Co-Lead Plaintiff Öhman Fonder is a large, independent institutional investor responsible
`31.
`for overseeing approximately $9.2 billion in assets. Founded in 1906, Öhman Fonder is headquartered in
`Stockholm, Sweden. As set forth in the certification attached hereto as Exhibit A, Öhman Fonder
`purchased NVIDIA stock and suffered damages as a result of the securities law violations alleged herein.
`By order dated May 2, 2019, the Court appointed Öhman Fonder a Lead Plaintiff in this action.
`Co-Lead Plaintiff PGB is a multisector pension fund headquartered in Amsterdam,
`32.
`Netherlands. Founded in 1953 by employers and employees from the graphics arts industries, it now
`provides pensions and benefits for more than 311,000 people and manages approximately $30 billion in
`assets. As set forth in the certification attached hereto as Exhibit B, PGB purchased NVIDIA stock and
`suffered damages as a result of the securities law violations alleged herein. By order dated May 2, 2019,
`the Court appointed PGB a Lead Plaintiff in this action.
`Corporate Defendant
`Defendant NVIDIA is a multinational technology company that purports to have invented
`33.
`in 1999 the GPU, a type of processor designed “to solve some of the most complex problems in computer
`science.”1 NVIDIA remains one of the largest participants in the GPU market, with over 80% market
`share. While NVIDIA