` No. 21-15604
`
`D.C. No. 4:18-cv-
`07669-HSG
`
`
`OPINION
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`Plaintiffs-Appellants,
`
`Plaintiff,
`
`FOR PUBLICATION
`
`UNITED STATES COURT OF APPEALS
`FOR THE NINTH CIRCUIT
`
`E. OHMAN J:OR FONDER AB;
`STICHTING PENSIOENFONDS
`PGB, Lead Plaintiffs,
`
`
`
` and
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`IRON WORKERS LOCAL 580
`JOINT FUNDS,
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`
`
` v.
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`NVIDIA CORPORATION; JENSEN
`HUANG; COLETTE KRESS; JEFF
`FISHER,
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`
`
` and
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`OAKLAND COUNTY
`EMPLOYEES' RETIREMENT
`SYSTEM; OAKLAND COUNTY
`VOLUNTARY EMPLOYEES'
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` Defendants-Appellees,
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`2
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`E. OHMAN J:OR FONDER AB V. NVIDIA CORP.
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`BENEFIT ASSOCIATION TRUST;
`OAKLAND COUNTY
`EMPLOYEES' RETIREMENT
`SYSTEM TRUST,
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` Defendants.
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`Appeal from the United States District Court
`for the Northern District of California
`Haywood S. Gilliam, Jr., District Judge, Presiding
`
`Argued and Submitted May 10, 2022
`San Francisco, California
`
`Filed August 25, 2023
`
`Before: J. Clifford Wallace, William A. Fletcher, and
`Gabriel P. Sanchez, Circuit Judges.
`
`Opinion by Judge W. Fletcher;
`Dissent by Judge Sanchez
`
`SUMMARY*
`
`Securities Fraud
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`The panel affirmed in part and reversed in part the
`district court’s dismissal of a securities fraud action brought
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`* This summary constitutes no part of the opinion of the court. It has
`been prepared by court staff for the convenience of the reader.
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`E. OHMAN J:OR FONDER AB V. NVIDIA CORP.
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`3
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`under §§ 10(b) and 20(a) of the Securities and Exchange Act
`of 1934 and Rule 10b-5 against NVIDIA Corp. and three of
`its officers.
`Plaintiffs alleged that NVIDIA, a producer of graphics
`processing units, knowingly or recklessly made materially
`misleading and false statements regarding the impact of
`cryptocurrency sales on NVIDIA’s financial performance in
`order to conceal the extent to which NVIDIA’s revenue
`growth depended on the notoriously volatile demand for
`cryptocurrency. Plaintiffs alleged that the three individual
`defendants had actual knowledge that increases in demand
`for NVIDIA’s Gaming-segment products were largely
`driven by crypto-related sales, that their public statements
`minimizing the impact of crypto-related sales on NVIDIA’s
`revenues were materially false or misleading, and that the
`statements were made knowingly or recklessly. The district
`court dismissed plaintiffs’ amended complaint for failure to
`sufficiently plead that defendants’ allegedly false or
`misleading statements were made knowingly or recklessly.
`In order to prevail on their claims under § 10(b) and Rule
`10b-5, plaintiffs were required to show both that defendants’
`statements were materially false or misleading, and that their
`statements were made knowingly or recklessly. The panel
`held that the amended complaint sufficiently alleged that
`defendants Jensen Huang and Colette Kress made materially
`false or misleading statements, but the amended complaint
`did not sufficiently so allege as to defendant Jeff Fisher. The
`panel held that the amended complaint sufficiently alleged
`that Huang, but not Kress, made the statements knowingly
`or recklessly, in violation of § 10(b) and Rule 10b-5.
`Section 20(a) assigns joint and several liability for any
`person who
`controls
`any
`person
`liable
`under
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`4
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`E. OHMAN J:OR FONDER AB V. NVIDIA CORP.
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`§ 10(b). Because the panel held that the amended complaint
`did not sufficiently plead a cause of action under § 10(b) and
`Rule 10b-5 against defendants Kress and Fisher, the only
`alleged primary violation was that committed by NVIDIA
`through defendant Huang. The panel affirmed the district
`court’s dismissal of plaintiffs’ § 20(a) claims against Kress
`and Fisher, vacated the dismissal of the § 20(a) claims as to
`Huang, and remanded for further proceedings as to those
`claims.
`Dissenting, Judge Sanchez wrote that, under the pleading
`requirements of the Private Securities Litigation Reform Act
`of 1995, plaintiffs failed sufficiently to allege either falsity
`or scienter.
`
`
`COUNSEL
`
`Gregory P.N. Joseph (argued) and Rachel M. Cherington,
`Joseph Hage Aaronson LLC, New York, New York; Eric
`Gerard, Matthew L. Mustokoff, and Andrew L. Zivitz,
`Kessler Topaz Meltzer & Check LLP, Radnor,
`Pennsylvania; Jennifer L. Joost, Kessler Topaz Meltzer &
`Check LLP, San Francisco, California; John Browne and
`Michael Mathai, Bernstein Litowitz Berger & Grossman
`LLP, New York, New York; Lauren M. Cruz and Jonathan
`D. Uslaner, Bernstein Litowitz Berger & Grossman LLP,
`Los Angeles, California; for Plaintiffs-Appellants.
`Patrick E. Gibbs (argued), John Dwyer, Samantha Kirby,
`Joshua Walden, and Claire A. McCormack, Cooley LLP,
`Palo Alto, California; Kathleen R. Hartnett, Julie M. Veroff,
`Cooley LLP, San Francisco, California; Sarah M. Lightdale
`and Patrick Hayden, Cooley LLP, New York, New York; for
`Defendants-Appellees.
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`E. OHMAN J:OR FONDER AB V. NVIDIA CORP.
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`5
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`OPINION
`
`
`W. FLETCHER, Circuit Judge:
`
`Lead Plaintiff E. Öhman J:or Fonder AB and others
`(“Plaintiffs”) brought this putative class action on behalf of
`all persons or entities who purchased or otherwise acquired
`common stock of NVIDIA Corporation (“NVIDIA”) during
`the proposed Class Period. Plaintiffs allege that during the
`Class Period defendant NVIDIA and three of its officers
`knowingly or recklessly made materially “misleading and
`false statements regarding the impact of cryptocurrency
`sales on NVIDIA’s financial performance” in order to
`conceal the extent to which NVIDIA’s revenue growth
`depended on
`the notoriously volatile demand
`for
`cryptocurrency (“crypto”). Individual defendants are Jensen
`Huang, NVIDIA’s co-founder, President, and Chief
`Executive Officer; Colette Kress, NVIDIA’s Executive Vice
`President and Chief Financial Officer; and Jeff Fisher,
`NVIDIA’s Senior Vice President of the GeForce Business
`Unit and Head of Gaming during the Class Period.
`Plaintiffs allege violations of Sections 10(b) and 20(a) of
`the Securities and Exchange Act of 1934 (“Exchange Act”),
`15 U.S.C. §§ 78j(b) and 78t(a), and of Securities and
`Exchange Commission Rule 10b-5, 17 C.F.R. § 240.10b-5.
`Plaintiffs allege that the individual defendants had actual
`knowledge that increases in demand for NVIDIA’s Gaming-
`segment products were largely driven by crypto-related
`sales, that their public statements minimizing the impact of
`crypto-related sales on NVIDIA’s revenues were materially
`false or misleading, and that the statements were made
`knowingly or recklessly.
`
`
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`6
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`E. OHMAN J:OR FONDER AB V. NVIDIA CORP.
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`The district court dismissed Plaintiffs’ first complaint
`with leave to amend, holding that it failed to plead
`sufficiently that defendants’ statements were materially false
`or misleading, and that the statements were made knowingly
`or recklessly.
` The complaint’s allegations that the
`statements were materially false or misleading relied in part
`on expert analysis provided by the Prysm Group (“Prysm”),
`which had been employed by Plaintiffs to provide an
`analysis of NVIDIA’s finances. The court found that
`Plaintiffs’ complaint “fail[ed]
`to describe Prysm’s
`assumptions and analysis with sufficient particularity to
`establish a probability that its conclusions are reliable.”
`Further, the court found that the complaint’s allegations of
`scienter depended on confidential witness statements that
`“fail[ed] to plausibly establish that any particular statement
`by any Individual Defendant was knowingly or recklessly
`false or misleading when made.”
`After Plaintiffs amended their complaint, the district
`court dismissed the complaint under Rule 12(b)(6) without
`leave to amend. Iron Workers Local 580 Joint Funds v.
`NVIDIA Corp., 522 F. Supp. 3d 660, 679 (N.D. Cal. 2021).
`The court dismissed on the sole ground that the amended
`complaint failed to sufficiently plead that the defendants’
`allegedly false or misleading statements were made
`knowingly or recklessly. Id. The court found that
`allegations in the complaint “again fail[ed] to raise a strong
`inference of scienter, largely because Plaintiffs [did] not
`adequately tie the specific contents of any . . . data sources
`[about crypto-related demand] to particular statements so as
`to plausibly show that the Defendant who made each
`specified statement knowingly or recklessly spoke falsely.”
`Id. at 674. The court did not reach the question whether the
`amended complaint failed to sufficiently plead that the
`
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`E. OHMAN J:OR FONDER AB V. NVIDIA CORP.
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`7
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`statements were materially false or misleading. Id. at 679
`n.6.
`We reverse in part and remand for further proceedings.
`I. Background
`The following narrative is taken from Plaintiffs’
`amended complaint. Throughout this opinion unless
`otherwise noted, text inside quotation marks is taken directly
`from the amended complaint.
`NVIDIA is one of the world’s largest producers of
`graphics processing units (“GPUs”). A GPU is processing
`hardware that, when incorporated into an electronic device,
`allows that device to “perform[] computationally intensive
`tasks more efficiently.” GPUs were developed primarily for
`graphics rendering and are “used most frequently in video
`gaming,” but GPUs can also perform other “non-graphics
`tasks requiring repetitive computations.” One such non-
`graphics task is crypto mining.
`Cryptocurrencies are digital “tokens” that are circulated
`on networks using blockchain technology. At the heart of
`the
`technology
`is
`the blockchain, a “decentralized,
`immutable ledger” that relies on participants in the network
`to cooperatively verify and record pending transactions.
`Participants do so by using their computers’ processing
`power to solve “a difficult mathematical puzzle through
`laborious trial-and-error work,” and solutions are rewarded
`with new issues of cryptocurrency. This puzzle-solving
`process is called “mining.”
`In recent years, crypto networks have grown in size and
`complexity, making crypto mining an
`increasingly
`computational-intensive task. As a result, crypto miners use
`powerful mining hardware, such as GPUs, to perform their
`
`
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`8
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`E. OHMAN J:OR FONDER AB V. NVIDIA CORP.
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`mining. Crypto miners’ demand for GPUs can substantially
`boost the revenues of companies selling GPUs to miners.
`“Because cryptocurrency prices have swung wildly over
`their short history, the profitability of mining has followed
`suit,” and the resulting demand for GPUs “has proven
`extremely volatile.” When crypto prices drop substantially,
`mining becomes unprofitable. When that happens, miners
`stop purchasing GPUs and, in some cases, start reselling
`GPUs on the secondary market.
`Before the beginning of the Class Period, analysts and
`investors witnessed firsthand the impact of the “downside of
`crypto-mania” on NVIDIA’s “chief rival,” Advanced Micro
`Devices (“AMD”). In 2013 and 2014, AMD’s GPUs were
`“the gold standard” in hardware for mining Bitcoin, one of
`the most popular early cryptocurrencies. In the second half
`of 2013, Bitcoin prices increased dramatically. As a result,
`the demand for AMD’s GPUs “skyrocketed,” with its GPUs
`selling for up to three times their usual price. Five months
`after the peak demand for Bitcoin, “the price of Bitcoin
`dropped more than 70% . . . [, and] so, too, did demand for
`AMD’s GPUs—a problem compounded by miners dumping
`used AMD GPUs on the secondary market at steep
`discounts.” “AMD’s revenues suffered as its crypto-related
`sales evaporated.”
`
`
`The proposed Class Period runs from May 10, 2017,
`through November 14, 2018. The gravamen of Plaintiffs’
`suit is that, during the Class Period, the individual
`Defendants knowingly or recklessly misled investors about
`NVIDIA’s exposure to the crypto volatility that AMD had
`experienced just a few years before. The amended complaint
`alleges that the individual Defendants knew that crypto
`miners were purchasing very large numbers of NVIDIA’s
`“GeForce” GPUs, designed for gaming, but that in their
`
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`E. OHMAN J:OR FONDER AB V. NVIDIA CORP.
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`9
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`public statements the individual Defendants failed to reveal,
`or materially understated, the amount of NVIDIA’s revenue
`growth that was due to crypto-related purchases of GeForce
`GPUs.
`NVIDIA generally does not sell its GPUs directly to end
`users, but rather to device manufacturers, referred to as
`“partners.” Partners purchase GPUs from NVIDIA and
`distribute them to end users. NVIDIA sells to partners in
`five markets, commonly referred to as “segments.” Two
`segments are pertinent here: (1) Gaming; and (2) Original
`Equipment Manufacturer
`and
`Intellectual Property
`(“OEM”). The Gaming segment is NVIDIA’s most
`important market. During the Class Period, revenues in the
`Gaming segment “exceeded those of the four other segments
`combined.” NVIDIA’s primary product in the Gaming
`segment is its “GeForce GPU,” which is “designed to
`improve video-game applications.” (Cleaned up.) GeForce
`GPUs are designed for gaming, but like AMD’s GPUs they
`can also be used for crypto mining. In particular, GeForce
`GPUs can be used to mine “Ether,” one of the most
`significant cryptocurrencies during the Class Period. The
`OEM segment generally comprises “low-end GPUs sold into
`devices such as tablets and phones, as well as intellectual-
`property assets.” OEM has been an “ancillary catch-all
`segment that contributed just 5% to 10% of [NVIDIA’s]
`revenues.”
`NVIDIA carefully monitors purchases of GPUs from its
`partners. Such purchases are known as “sellout.” “In 2015,
`[Defendant] Huang told investors during an earnings call,
`‘we monitor sellout in the channel literally every day.’”
`In 2016, “signs of a new bubble appeared.” The price of
`Bitcoin more than quadrupled between September 2015 and
`
`
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`10
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`E. OHMAN J:OR FONDER AB V. NVIDIA CORP.
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`the end of 2016, and a number of other cryptocurrencies
`came on line at about this time. The most important of the
`new cryptocurrencies was Ether. “[I]n the spring of 2017,
`Ether began a meteoric climb that temporarily peaked at over
`$400 per token . . . . [I]n January 2018, Ether peaked at over
`$1,400 per token—an increase of more than 13,000% in a
`single year. Other cryptocurrencies mined with GPUs
`witnessed similarly dramatic increases in value. These
`skyrocketing valuations made mining
`enormously
`profitable, and once again caused a massive surge in demand
`for GPUs.”
`As cryptocurrency valuations skyrocketed, miners
`purchased NVIDIA’s GeForce GPUs “in droves.”
`NVIDIA’s Gaming-segment revenues, driven by sales to
`crypto miners, increased dramatically as the price of Ether
`and other cryptocurrencies skyrocketed. “[O]n May 9, 2017,
`NVIDIA reported first quarter sales [from February 1 to
`April 30, 2017] for its Gaming segment of $1.02 billion—
`representing a 49% year-over-year increase and 52.8% of
`total revenues. The Company reported similarly spectacular
`numbers each quarter for the next year, including on May
`10, 2018, when it announced that Gaming-segment revenues
`were $1.723 billion—a 68% year-over-year increase, and
`approximately 2.5 times the revenue for that segment two
`years prior.”
`“[I]n May 2017, [at the beginning of the class period,]
`NVIDIA launched a special GPU specifically designed for
`cryptocurrency mining (the ‘Crypto SKU’).” Crypto SKUs
`were designed for crypto mining rather than for gaming.
`Revenues from sales of Crypto SKUs were reported as
`OEM-segment rather
`than Gaming-segment revenues.
`Despite the introduction of Crypto SKUs, crypto miners
`continued to purchase enormous numbers of GeForce GPUs.
`
`
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`E. OHMAN J:OR FONDER AB V. NVIDIA CORP.
`
`11
`
`All revenues from sales of GeForce GPUs were recorded by
`NVIDIA as Gaming-segment revenues, even though a very
`substantial portion of those revenues came from purchases
`by crypto miners.
`On January 1, 2018, NVIDIA revised its GeForce End
`User Licensing Agreement (“EULA”) to generally prohibit
`end users from employing GeForce GPUs in corporate
`datacenters.
` Critically, however, the EULA left an
`“important carve-out [that] . . . not only acknowledged, but
`encouraged, the continued use of GeForce GPUs (not the
`Crypto SKU) for large-scale cryptocurrency mining in
`datacenters.” The carve-out read, “The software is not
`licensed for datacenter deployment, except that blockchain
`processing in a datacenter is permitted.”
`investors
`During
`the Class Period, analysts and
`repeatedly asked the individual Defendants about the source
`of NVIDIA’s dramatically increased company revenues. In
`particular, they asked whether the increased revenues were
`driven by sales to crypto miners. In the wake of AMD’s
`crypto boom and bust, analysts and investors “were acutely
`focused on how much of NVIDIA’s revenues were based on
`cryptocurrency-mining.” “Analysts asked specific questions
`about the subject during each of the Company’s earnings
`calls during the Class Period and . . . at numerous
`conferences and in several interviews.”
`When responding to questions from analysts and
`investors,
`individual Defendants Huang and Kress
`repeatedly denied that increases in NVIDIA’s Gaming-
`segment revenue were driven by demand from crypto
`miners. As recounted in detail below, Defendants Huang
`and Kress insisted that NVIDIA’s exposure to crypto
`volatility was limited to the relatively small fraction of
`
`
`
`
`
`12
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`E. OHMAN J:OR FONDER AB V. NVIDIA CORP.
`
`NVIDIA’s total revenues attributable to OEM-segment sales
`of Crypto SKUs. As also recounted in detail below,
`investors and analysts credited Huang’s and Kress’s
`statements.
`Near the end of the Class Period, the profitability of
`crypto mining declined. Purchases of GeForce GPUs
`declined as a result. On August 16, 2018, NVIDIA lowered
`revenue guidance by 2.2% for the upcoming quarter that
`would run from August 1 to October 31, 2018. This
`guidance projected revenue at a level “significantly lower
`than the market had expected.” “Investors and the financial
`press immediately connected the share price decline to
`NVIDIA’s guidance revision and soft results from its
`cryptocurrency sales.” However, Defendants did not
`disclose the source and extent of the problem. Defendant
`Huang “downplayed concerns.”
` “Analysts credited
`Defendants’ reassuring statements.”
`On November 15, 2018, the day after the end of the Class
`Period, NVIDIA announced that it had missed revenue
`projections by nearly 2% for the quarter that had just ended
`and that “it was expecting [overall] revenues of only $2.7
`billion” in the next quarter, “a 7% decline” from the quarter
`a year earlier. In prepared remarks on November 15,
`Defendant Kress stated: “Gaming was short of expectations
`as post crypto channel inventory took longer than expected
`to sell through.” In his remarks on November 15, Defendant
`Huang referred to the excess channel inventory as a “crypto
`hangover.”
`As recounted in detail below, investors and analysts were
`surprised by NVIDIA’s November 15 disclosures.
`NVIDIA’s stock price plummeted. It dropped 28.5% in two
`
`
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`E. OHMAN J:OR FONDER AB V. NVIDIA CORP.
`
`13
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`trading days, from $202.39 per share on November 15 to
`$144.70 per share on November 19.
`This suit followed.
`
`II. Standard of Review
`“We take as true the complaint’s plausible and properly
`pleaded allegations . . . .” In re Quality Sys., Inc. Sec. Litig.,
`865 F.3d 1130, 1136 (9th Cir. 2017). Securities fraud cases,
`such as this one, are subject to the heightened pleading
`standard not only of Federal Rule of Civil Procedure 9(b) but
`also of the Private Securities Litigation Reform Act of 1995
`(“PSLRA”). Zucco Partners, LLC v. Digimarc Corp., 552
`F.3d 981, 990–92 (9th Cir. 2009). Rule 9(b) provides, “In
`alleging fraud . . . , a party must state with particularity the
`circumstances constituting fraud . . . .” The PSLRA
`provides, as to allegations of “[m]isleading statements and
`omissions,” that a complaint “shall specify each statement
`alleged to have been misleading [and] the reason or reasons
`why the statement is misleading.” 15 U.S.C. § 78u–4(b)(1).
`It provides, as to allegations of a “[r]equired state of mind,”
`that a “complaint shall, with respect to each act or omission
`alleged to violate this chapter, state with particularity facts
`giving rise to a strong inference that the defendant acted with
`the required state of mind.” 15 U.S.C. § 78u–4(b)(2). “In
`determining whether the complaint has satisfied these
`standards, we ‘consider the complaint in its entirety, as well
`as . . . documents incorporated into the complaint by
`reference, and matters of which a court may take judicial
`notice.’” Quality Sys., 865 F.3d at 1140 (alteration in
`original) (quoting Tellabs, Inc. v. Makor Issues & Rts., Ltd.,
`551 U.S. 308, 322–23 (2007)).
`
`
`
`
`
`14
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`E. OHMAN J:OR FONDER AB V. NVIDIA CORP.
`
`III. Discussion
`In order to prevail, Plaintiffs must show both that
`Defendants’ statements were materially false or misleading,
`and that their statements were made knowingly or recklessly.
`In dismissing Plaintiffs’ amended complaint under Rule
`12(b)(6), the district court reached only the question whether
`Defendants’ statements were made knowingly or recklessly.
`We may reach the question whether Defendants’
`statements were materially false or misleading despite the
`district court’s failure to reach it. Because the district court
`dismissed the amended complaint under Rule 12(b)(6), there
`is no need for record development. Nw. Env’t Def. Ctr. v.
`Brown, 640 F.3d 1063, 1080–81 (9th Cir. 2011), rev’d on
`other grounds sub nom, Decker v. Nw. Env’t Def. Ctr., 568
`U.S. 597 (2013). For purposes of Rule 12(b)(6), we need
`only read the complaint and any associated documents and,
`where appropriate, take judicial notice. Both parties have
`briefed the question whether Defendants’ statements were
`materially false or misleading. See, e.g., Dole Food Co. v.
`Watts, 303 F.3d 1104, 1117–18 (9th Cir. 2002) (reversing
`the district court after deciding a question not reached by the
`district court: “The district court did not reach this issue, but
`both parties agreed at oral argument that it is properly before
`us for decision. Because the record is sufficiently developed
`and the issue has been presented and argued to us, we agree
`that it is appropriate for us to decide the question.”); see also
`Harris Rutsky & Co. Ins. Servs., Inc. v. Bell & Clements,
`Ltd., 328 F.3d 1122, 1136 (9th Cir. 2003). We therefore
`reach the question whether Defendants’ statements were
`materially false or misleading, as well as the question
`whether Defendants’ statements were made knowingly or
`recklessly.
`
`
`
`
`
`E. OHMAN J:OR FONDER AB V. NVIDIA CORP.
`
`15
`
`We first address Plaintiffs’ claim under Section 10(b) of
`the Exchange Act and SEC Rule 10b-5. We hold that the
`amended complaint sufficiently alleges that Defendant
`Huang made materially false or misleading statements and
`that he made those statements knowingly or recklessly, in
`violation of Section 10(b) and of Rule 10b-5. We next
`address Plaintiffs’ claim under Section 20(a) of the
`Exchange Act.
` We remand that claim for further
`proceedings in the district court.
`A. Section 10(b) of the Exchange Act and SEC Rule 10b-5
`Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b),
`provides in relevant part: “It shall be unlawful for any
`person, directly or indirectly . . . [t]o use or employ, in
`connection with the purchase or sale of any security
`registered on a national securities exchange . . . any
`manipulative or deceptive device or contrivance
`in
`contravention of such rules and regulations as
`the
`Commission may prescribe as necessary or appropriate in
`the public interest or for the protection of investors.” 15
`U.S.C. § 78j(b). SEC Rule 10b-5 provides in relevant part:
`“It shall be unlawful for any person, directly or
`indirectly . . . [t]o make any untrue statement of a material
`fact or to omit to state a material fact necessary in order to
`make the statements made, in the light of the circumstances
`under which they were made, not misleading, or [t]o engage
`in any act, practice, or course of business which operates or
`would operate as a fraud or deceit upon any person.” 17
`C.F.R. § 240.10b-5. The amended complaint alleges that
`Defendants made materially false or misleading statements,
`and that they did so knowingly or recklessly.
`
`
`
`
`
`16
`
`E. OHMAN J:OR FONDER AB V. NVIDIA CORP.
`
`1. Materially False or Misleading Statements
`A materially false or misleading statement violates
`Section 10(b) and Rule 10b-5. “Falsity is alleged when a
`plaintiff points to defendant’s statements that directly
`contradict what the defendant knew at the time.” Khoja v.
`Orexigen Therapeutics, Inc., 899 F.3d 988, 1008 (9th Cir.
`2018). “Even if a statement is not false, it may be misleading
`if it omits material information.” Id. at 1008–09. “[A]
`statement is misleading if it would give a reasonable investor
`the ‘impression of a state of affairs that differs in a material
`way from the one that actually exists.’” Retail Wholesale &
`Dep’t Store Union Loc. 338 Ret. Fund v. Hewlett-Packard
`Co., 845 F.3d 1268, 1275 (9th Cir. 2017) (alteration in
`original) (quoting Berson v. Applied Signal Tech., Inc., 527
`F.3d 982, 985 (9th Cir. 2008)).
`The amended complaint alleges that the individual
`Defendants’ statements during the Class Period were
`materially false or misleading because they failed to state or
`substantially understated the extent to which NVIDIA’s
`Gaming-segment revenues were based on sales of GeForce
`units to crypto miners. We hold that the statements made by
`individual Defendants Huang and Kress were materially
`false or misleading. However, we do not so hold as to a
`statement made by Defendant Fisher.
`a. A Very Substantial Part of NVIDIA’s Revenues
`Came from Sales of GeForce GPUs to Crypto Miners
`The amended complaint sufficiently alleges that a
`substantial part of NVIDIA’s crypto-related revenue during
`the proposed Class Period came from sales of GeForce
`GPUs that were reported in NVIDIA’s Gaming segment.
`We remind the reader that the proposed Class Period runs
`from May 10, 2017, to November 14, 2018.
`
`
`
`
`
`E. OHMAN J:OR FONDER AB V. NVIDIA CORP.
`
`17
`
`The amended complaint alleges that in January 2019,
`after the precipitous fall of NVIDIA’s stock price in the
`wake of revelations during its November 15, 2018, earnings
`call, RBC Capital Markets
`(“RBC”) published an
`investigative report. RBC, a subsidiary of the Royal Bank
`of Canada, is an international investment bank with offices
`throughout the world. RBC has no connection to Plaintiffs.
`RBC’s report assessed “the true effect of cryptocurrency-
`related sales . . . on NVIDIA’s revenue [during an eighteen-
`month period] from February 2017 to July 2018.” “The
`report concluded that NVIDIA had ‘generated $1.95B in
`total revenue related to crypto/blockchain.’ The report
`pointedly noted that ‘[t]his compares to [the] company’s
`statement that it generated [about] $602M over the same
`time period’ in the OEM segment. In other words, RBC’s
`analysis
`indicated
`that NVIDIA had understated
`its
`cryptocurrency-related revenue by $1.35 billion over an 18-
`month period that overlapped with the Class Period.” (First
`and second alterations in original.)
`The amended complaint further alleges that Plaintiffs
`employed the Prysm Group (“Prysm”), “an economic
`consulting firm . . . that specializes in distributed ledger and
`blockchain technology,” to investigate the question already
`investigated by RBC. Prysm’s conclusion is almost identical
`to RBC’s conclusion. Prysm calculated that, for the fifteen
`months comprising five fiscal-year quarters between May 1,
`2017, and July 31, 2018, “Defendants understated
`NVIDIA’s crypto-related GPU sales by $1.126 billion.”
`The amended complaint includes a table summarizing
`Prysm’s conclusions. The table compares NVIDIA’s total
`cryptocurrency-related revenues to its Crypto SKU revenues
`for five of the fiscal-year quarters in the Class Period:
`
`
`
`
`
`18
`
`E. OHMAN J:OR FONDER AB V. NVIDIA CORP.
`
`During the five fiscal-year quarters running from May 1,
`2017, through July 31, 2018,1 NVIDIA reported revenues
`from sales of GeForce GPUs in its Gaming segment rather
`than in its OEM segment. According to the table, during that
`fifteen-month period, reported crypto-related revenues in the
`OEM segment totaled $602 million, while overall crypto-
`related revenues totaled $1.728 billion. Thus, crypto-related
`revenues in the Gaming segment were $1.126 billion.
`In the discussion that follows, we rely on the estimated
`numbers Prysm provided in the table reproduced above. We
`recognize that, although the revenues listed on the table are
`expressed in precise numbers, they are estimates. Therefore,
`when relying on those estimates, we often use the word
`
`1 NVIDIA’s fiscal-year quarters are dramatically different from the
`calendar-year quarters they represent. NVIDIA’s fiscal year 2018 began
`on February 1, 2017. Thus, the second quarter of fiscal year 2018
`(“2Q18”) ran from May 1 through July 31, 2017. The second quarter of
`fiscal year 2019 (“2Q19”) ran from May 1 through July 31, 2018.
`
`
`
`
`
`E. OHMAN J:OR FONDER AB V. NVIDIA CORP.
`
`19
`
`“about” to remind the reader that the numbers in the Prysm
`table are estimates.
`Defendants object that the Prysm analysis is not
`sufficiently reliable, even when combined with other
`allegations in the complaint, to support an allegation that
`Defendants’ statements are false or misleading. We
`disagree.
`analysis was prepared by
`the Prysm
`First,
`knowledgeable and competent professionals. Prysm is “an
`economic consulting firm based in New York and Los
`Angeles that specializes in distributed ledger and blockchain
`technology.” Prysm is led by Drs. Cathy Barrera and
`Stephanie Hurder, both of whom have PhDs in business
`economics from Harvard University. Drs. Barrera and
`Hurder have held academic, consulting, and business
`positions in which they have specialized in the economics of
`blockchain.
`Second, Prysm provided a detailed analysis to support its
`conclusions. See 15 U.S.C. § 78u-4(b)(1)(B). The
`complaint provided detailed information about Prysm’s
`methodology as well as a particularized recitation of facts
`upon which Prysm relied. Prysm first calculated the
`additional computing power used on major GPU-mined
`blockchain networks during the Class Period. It focused on
`the “three most popular GPU-mined cryptocurrencies during
`the Class Period.” The additional computing power was
`calculated using the change in the network’s hashrate from
`one quarter to the next. Hashrate is the measure of the
`number of calculations performed per second on a given
`blockchain network. The hashrate data was obtained from
`“two of the most widely used sources of network hashrate
`data.” The maximum hashrate of one quarter was compared
`
`
`
`
`
`20
`
`E. OHMAN J:OR FONDER AB V. NVIDIA CORP.
`
`to the maximum hashrate of the next quarter. This produced
`a conservative estimate of the increased hashrate because, by
`using the maximum hashrate from the last quarter, Prysm
`assumed that every single GPU that mined on the blockchain
`network last quarter at its peak was used during the
`subsequent quarter.
`Prysm calculated the total number of GPUs needed to
`account for the additional computing power. Prysm used the
`hashing power of the GeForce GTX 1060 to represent a
`standard GPU’s hashing power, as it was NVIDIA’s
`cheapest and most economical model (and thus provided the
`most conservative revenue estimate). Based on the GeForce
`GTX 1060’s hashing power, Prysm estimated that a
`minimum of approximately 16.9 million GPU units would
`be required to make up for the difference in computing
`power during the Class Period.
`Prysm determined
`that NVIDIA’s cryptocurrency
`market share was approximately 69%. It used three sources
`to make this determination. First, in 2018, Jon Peddie
`Research, a “prominent” computer industry research firm
`that is relied upon “by major investment firms throughout
`the financial industry to analyze market dynamics”—a
`research firm relied upon by Defendants themselves—
`published a study analyzing cryptocurrency mining market
`shares. The study estimated that NVIDIA’s market share
`was approximately 69.4% in third-quarter fiscal year 2017
`(August 1 through October 31, 2016) and 68.6% in fo
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