NVIDIA knew a lot of their GPUs were bought for crypto mining, but attributed those sales instead to growth in gaming, potentially misleading some investors (maybe they wanted to invest in gaming, not the very volatile crypto industry).
This is the SEC doing their job, giving a public company a reminder to be honest about their disclosures. The fine is insignificant and nobody is in trouble.
It has nothing to do with whether people could've read between the lines, whether NVIDIA has a duty to know what their products are used for, or anything like that. Just that they knew what was going on and told a small lie to bolster their finances. You should be able to read company financial disclosures and trust them.
My only problem here is once again the fine is meaningless. $5.5 million is couch change for Nvidia. The fines are supposed to deter these actions. This has no effect whatsoever.
The fine should be proportionate to the severity of the offense and the magnitude of the misbegotten gains.
In this case, the severity was fairly low: they didn't lie about what they were selling or how much they were selling, but they did purposefully omit some material information about their customers. If you were convinced that cryptocurrency is the future, then NVidia not mentioning cryptominers should have reduced your forecast of their earnings. If you were convinced that cryptocurrency will die any day now, then NVidia's omission should have increased your forecast for them.
But how much money did people lose? It's hard to say. This should be enough money that NVidia's investor relations people make sure not to do it again, but not so much money that NVidia can't recover.
In a hypothetical where NVidia told lies in order to manipulate its stock price, a much much larger fine should be levied.
It is not low impact. It makes a huge difference from an investor point of view if increased revenue comes from gaming (evergreen) or crypto mining (trend at best, hype).
SEC failed to disclose the actual numbers, thus righting the wrong Nvidia has done to investors. And 5.5M is a ridiculous fine for something that the insiders benefited from multifold. They missed at least one 0. Someone should have been fired over this.
I would be curious if those insiders that made the decision have sold shares that were inflated.
That’s not entirely true. A fine from a regulator, no matter how small, contains the threat that a much bigger punishment will come if you are a repeat offender. That includes trading suspensions:
Fines against public companies are among the least effective deterrents I can possibly imagine. The officers make the mistake/misrepresentations, and the shareholders take the hit. If the government really wanted to deter these actions, they'd fine the officers making the 'wrong' statements.
This is a terrible idea. Mistakes of this magnitude are often the result of multiple people making mistakes - so blaming a specific person is wrong.
Not to mention that this would force a culture of attributing blame to individuals which is toxic, encourages people to hide mistakes and when mistakes happen the first thing everyone would scramble to is to find a scapegoat. This is objectively worse for both the company and the shareholders.
The right approach for the government is to appropriately penalize the companies. The right approach for companies is to put in processes that make sure no single person is even in a position to make mistakes like this.
>"The right approach for the government is to appropriately penalize the companies."
The government isn't penalizing the companies, it's penalizing the shareholders, who are the ones that suffered the inadequate disclosures!
>"Mistakes of this magnitude are often the result of multiple people making mistakes - so blaming a specific person is wrong."
Then either split the fine amongst the responsible parties, or just issue some sort of order that requires changes (such as some sort of audit) without a fine. If you can't find any specific person who did something clearly wrong, it's probably best to avoid blaming 'the company' (which is just a collection of individuals).
What makes you think the SEC can find the ‘guilty’ parties and that the company (i.e. possibly the very same people) would willingly cooperate with them and not just find a scapegoat to push under the bus? And just repeat this process every time something bad happens.
The point of the fine is to disincentive the company (and also other companies) from doing the same thing again, unless criminal behavior (i.e. fraud) was involved that’s purely an internal matter for the company (they may fire the people who supposedly did this or do whatever they think is necessary).
If the SEC or DoJ can't figure out who's done something wrong, they should probably refrain from any prosecution. I am not sure what the 'point of the fine' is, but it seems like most companies just treat it as a cost of doing business, that they pay before moving on with whatever they were doing.
If you think it's difficult to figure out who did what wrong, and that the companies are just scapegoating people, then the SEC implementing fines that cause the company to fire people is likely causing unjust firings.
Why not punish both? Humans get away with actions under the flag of a country, business, or organization. It makes no sense. But it also makes no sense to let the overlying structure get away with it. Hence my question: why not punish both? Yes, I do understand more than 1 person is responsible. But that's the flak you receive when you are high up in the hierarchy. You end up having responsibility. And with responsibility comes repercussions if you don't follow the rulebook (except in the corporate world, of course).
AMD and NVIDIA's numbers for crypto sales have always been dodgy. Like in 2017-2018 I think they said that crypto sales (including gaming cards used for crypto) made up like 5% or 10% of their revenue, which is total bullshit. I assume they had a range of potential numbers internally (there is always a range) and they picked the lowest possible number to avoid spooking investors.
There is very very little gaming demand for these cards at 2-3x MSRP. Yeah, there's a few, but not many. As mining demand has tapered off this quarter, you've seen prices absolutely plummet, and if there was truly organic gaming demand for cards at those prices, that wouldn't have happened.
When prices get super elevated (that 2-3x MSRP range), IMO the realistic number is at least 30% if not more like 50% of total sales are crypto-related.
Some caveats:
bear in mind that OEM sales are a huge thing. Something like half the cards on the market will never even hit a distribution channel. So even if nearly-100% of aftermarket sales go to miners, there's a significant number being moved in prebuilts. That said, at the height of crypto mania, miners will buy prebuilts and strip them of their GPUs and resell them on ebay/craigslist/facebook, so OEM sales are not 100% crypto-unrelated either.
I am taking that into account when I am guessing 30-50% - I think the number for retail sales are >75% if not >90% miner sales when that happens, and it's really only the OEM sales that hold things down to 30-50%. There are very few actual consumers willing to pay the $2400 that 3080s were going for at their peak, that's triple MSRP, and prices immediately plummeted when the LHR was created, because prices are driven by hash rate and expected crypto profit, not gaming sales.
AMD more or less didn't participate in crypto this time around though, because they simply didn't make any GPUs. 6800 and 6700XT are reasonably competent miners - about 3060 Ti/3070 performance, which is undesirable in a relative sense compared to Ampere and RDNA1 but that's still twice the hashrate of a RX 480, miners still use those cards very happily, and RDNA2 is more efficient because it's 7nm. But it took over a year after launch for the first RDNA2 card to show up on the Steam Hardware Survey - at 0.15% marketshare. Meanwhile Ampere was around 10% marketshare at that time. You can go back and look at the historical Steam results using the Wayback machine, or here's a contemporary article (you don't have to like Tom's, the numbers are from Steam):
(If anything this probably understates it since miners did go after NVIDIA cards preferentially. It’s likely more like a factor of 20x in total shipments, vs the Steam numbers. I guess that’s where you go to the JPR numbers tho.)
Basically, AMD did not make hardly any GPUs because console sales were unexpectedly high and those contracts got first priority, at one point there were reports that console sales were eating 80% (!) of AMD's wafer supply. The remaining wafers went to CPUs since even a consumer CPU is ~10x more profit per wafer than a GPU - it makes complete sense to maximize their revenue on the remaining wafers after consoles got the lion's share.
RDNA2 was the paperiest of paper launches. They delayed it as long as they could, and did a token paper launch to satisfy investors. I think the term "paper launch" is overused - it doesn't mean "I can't buy one on launch day" or even "I can't get one the first month" - Pascal took 6 months for inventory to normalize, 1080 was unobtanium until about November 2016 and even the 1070 was hard to get for a few months. Someone I know used the term "holodomor launch" at the time (cringe). But RDNA2 was a true paper launch, in the sense of only existing to satisfy commitments made to investors. AMD had no intention of producing serious quantities of it when they could be making 10-50x the money per wafer selling CPUs (and wafers are their bottleneck scaling profit). 6700XT and 6600XT/6600 were the only cards that shipped in any volume and those lower-end cards didn't launch until almost a year after the initial RNDA2 cards.
Not saying that wasn't the right decision in a financial sense, of course. Investors want them to make money, and AMD was very very wafer-bottlenecked. But the GPUs were launched just to say they launched.
But in a backhanded way, that was a good strategy this time around. No GPUs manufactured means very little crypto exposure. That's one solution to crypto boom-and-bust I guess - find a new market and don't sell GPUs anymore. NVIDIA is very, very subject to the boom/bust cycle of crypto and unlike AMD or Intel they don't have diversity of other products to smooth things out (not just other segments like enterprise/automotive, but other products like CPUs and mobile SOCs, etc).
AMD did participate last time though, and they had a huge inventory overhang that took almost a year to clear just like NVIDIA did. Not sure where people got the idea they didn't, but they discussed it openly in their late-2018 and early/mid-2019 financials calls... Here's a random one from that period I pulled up, ctrl-f "inventory" and look for yourself.
Also, the bit about "NVIDIA selling cards directly to miners!" ended up being fake and based on tech media wildly misinterpreting a paywalled RBS article (that none of them wanted to pay for lol) that used an estimate of crypto network hash growth to estimate crypto gpu sales... after some massaging the line "miners bought $175m of NVIDIA GPUs based on hashrate estimates" became "NVIDIA sold $175M of their GPUs directly to miners outside retail channels" which simply isn't true.
This is a great example of what I reference elsewhere in the thread, about how there's a clique that likes to manufacture fake or marginal rumors about NVIDIA, because a lot of people have viscerally negative emotional reactions to NVIDIA and it gets a lot of attention and clicks.
Mining card sales (not gaming cards used for mining, but actual dedicated mining cards) were a thing, but a very small thing overall (I'd guess less than 5% revenue as a segment, with gaming running around 50%). And many mining cards are still sold through partners or OEMs like HP... I used to see the EVGA cards coming through b-stock back in 2019.
Now in contrast partners were absolutely selling gaming cards in bulk direct to miners. Miners pay a premium for access to the cards, and partners require them to give up their warranties, so it's an advantageous deal for them, but as far as I know NVIDIA does not sell direct.
Just some baseline stuff that I often see come up in the nvidia/crypto discussions that is wrong, tried to source as much as I can.
Some gamers with high-end cards are likely doing a bit of mining. If the parents or dorms are picking up the electricity bill, that makes sense. And then there are some cards that are used for gaming and to study deep learning, I guess. It is likely a bit more of a mixed use of compute than just pure mining.
To give an example, I'm not a student, but I do have a box with 2 x RTX 2080 sitting in my garage, which I use for hobbyist deep learning research. Sometimes, I also need heating in my garage, it gets cold during the winter. It was pretty easy to flash a NiceHash usb stick. So I boot it from it and it becomes a 1.5kW heater which pays for itself. Not particularly efficient or climate friendly, but oh well.
> Some gamers with high-end cards are likely doing a bit of mining. If the parents or dorms are picking up the electricity bill, that makes sense.
Yeah, I think a good number of gamers who bought cards are mining on them in their spare time as well. I'm counting that as a gaming sale since it's primarily for gaming rather than someone who set out to buy 10 cards and build a mining rig, but I do think a lot of people did the "well, I'll mine on it when I'm not using it and it'll soften the blow a bit..." approach.
And you don't even need free electricity, the cards were and are still profitable, just not profitable enough (anymore) to gamble $10-20k setting up an industrial-style mining rig with a full loadout of cards. If you have the card anyway (because you game/train AI/etc) then it's still worth mining.
I question how many people cashed out regularly though, there may be a lot of people sitting with a bunch of paper profits from their gaming card...
> And then there are some cards that are used for gaming and to study deep learning, I guess. It is likely a bit more of a mixed use of compute than just pure mining.
I think that's a small market in general, there's not millions and millions of those people and they're not setting up hundreds of rigs with thousands of cards, but yeah definitely, that exists. I know people who bought a quad-1080 ti or quad-3090 rig and used it for gaming/DL/homelab and mined on it when they weren't using it.
It was perhaps a little less appealing this gen since there was never a proper Titan - the 3090 is still locked down in certain types of operations, not just FP64 but also some data types/operations that iirc might be relevant to DL users. bfloat16, and some types of FMA operations, or something like that? But lots of people can work around it or it isn't relevant to the thing they wanted to do, there are still a decent number of DL/homelab people who will buy it. It's again, not a gigantic market, but it's there.
imo with the way prices stacked up - it was $2400 for a 3080 or $3000 for a 3090 on ebay, and it was actually possible sometimes to get 3090s at decent prices ($2000) from partners (Zotac, EVGA, etc), where it wasn't really possible to ever score a 3080 from partners due to extreme levels of demand. So you could score a retail 3090 for cheaper than an ebay 3080, and actually even at ebay pricing, if you're going to spend $2.4k on a GPU anyway... just spend the last $600 and get the extra VRAM. 10GB is going to noticeably shorten the viable lifespan of the card anyway.
Given the pricing, it made a lot of sense imo to aim for the 3090 over the 3080, both for homelab/DL type stuff, and honestly also because the 3080 had a very stingy amount of VRAM out of the box even for gaming. I know the technical reasons (yield, memory bus width, etc) that make this complicated, but I'd really liked to have seen 12GB on the original 3080, if not 16GB. I think GDDR6X was a mis-step in a lot of ways and they would have been better off with a conventional 512b bus with GDDR6 instead of a super-fast 384b bus with GDDR6X... but that also complicates routing and board design.
> There is very very little gaming demand for these cards at 2-3x MSRP
Anecdotally, I know 10 or so people that paid 2x+ for RTX3000 series cards and zero that are mining. A lot of people my age (about 40) got back into PC games for something to do during the pandemic.
Anecdotally I know a lot of people who are too ashamed to admit they're mining on it in their spare time but know that leaving a money printer that makes $5 a day sitting idle is stupid. ;)
(even today, a 3090 is still profitable even with absurd $0.30/kWh electricity or whatever - if you are around the national average of 10c they're still doing like $3 a day. Not "buy 10 of them and build a rig" profitable anymore, but at the peak they could do ~$11 a day after electricity and for a long time they were $5 a day after electricity. Pre-LHR 3080s were a beast too, almost the same hashrate as a 3090.)
Anyway the backlash against mining and miners in the 2021 timeframe was real and intense. I'm not saying there aren't legitimate reasons - it's a waste of electricity, it's screwing up the market for everyone else, etc - but I think a huge number of gamers who bought cards in the 2020-2021 timeframe mined on them when they weren't using them and just don't want to admit it.
Unfortunately, crypto is a memeplex, it's like a corporation, it's a self-reinforcing living entity that supports itself (maintains homeostasis) through a series of rules and incentives, and now that it's been created it can't be easily killed. Every individual is financially incentivized to keep playing their part, so everyone would have to collectively agree to not make money by taking part, and as people fall out the incentives become steeper and steeper to participate. Would you mine on your card for $100 a day? $1000 a day?
Even if you pulled the plug on the exchanges, crypto is far enough along that it would be self-sustaining simply based on the black market. And the existence of PoS paradoxically makes it impossible to ever kill the PoW coins, because they can be traded on decentralized exchanges even if the real money exchanges ban them.
We will just have to live with destroying our planet, because now that it's been created it's virtually impossible to kill. That was the whole point. With apologies to Alien: it’s biologically engineered to be a survivor... the perfect predator (of certain other memeplexes).
>but know that leaving a money printer that makes $5 a day sitting idle is stupid. ;)
> Every individual is financially incentivized to keep playing their part, so everyone would have to collectively agree to not make money by taking part, and as people fall out the incentives become steeper and steeper to participate. Would you mine on your card for $100 a day? $1000 a day?
>We will just have to live with destroying our planet, because now that it's been created it's virtually impossible to kill.
You seem to have made up your mind on that front. If all you're worried about is making money at the cost of perpetuating behavior/consumption habits that are in the macroscale approaching pathological in terms of sustainability, that's on yo. Don't be surprised when the rest of society puts a punitive price tag on the activity as people are better able to quantify the tangible costs, and the layers of hype are peeled away.
Are you big in the crypto world? Cause one miner buying 250 cards matters a lot more then 10 gamers buying 1 each.
Also miners are typically buying the best card per a price point, which tends to be higher end or datacenter cards. Your average gamer is usually buying a medium tier.
This post breaks the site guidelines. Would you mind reviewing https://news.ycombinator.com/newsguidelines.html and sticking to the intended spirit? Among other things, that means making your substantive points without swipes.
AMD properly noted potential volatility due to cryptocurrency mining their SEC filings. [1]
>The demand for our products depends in part on the market conditions in the industries into which they are sold.... for example, our GPU revenue has been affected in part by the volatility of the cryptocurrency mining market...If we are unable to manage the risks related to the volatility of the cryptocurrency mining market, our GPU business could be materially adversely affected.
That's from their most recent one, but similar statements are in prior ones as well.
NVIDIA noted it too. This is about their earnings calls where they gave estimates of the magnitude of the crypto sales, and did what I consider (and really, most people who looked at it seriously) to be a massive massive undercount, by a factor of like 3-10x.
AMD was underselling it too though (in 2017-2018 it was a huge factor, not so much this time) and they had a huge inventory overhang lasting years as well... ctrl-f "inventory" in their late-2018/early-2019 earnings call transcripts.
It is not about the earnings call. The SEC notice specifically cites 10-Q filings in 2018 as the reason for their action. Earning calls may have been deficient as well, but it's their filings that got them in trouble.
Earnings calls are not intended to be anywhere near as comprehensive as a Q-10 filing. They will typically last a shorter time that it would take to merely read the Q-10 itself. Further, earnings calls are not a legally mandated requirement, some companies may not have them at all. This makes them less susceptible to SEC scrutiny.
As for AMD, they were making similar comments to what I quoted above in their 2018 filings, NVidia was not. AMD downplayed it a bit in an informal non-regulated setting but gave better information in the 10-Q does. For NVidia's 10-Q, it was barely a mention that some earnings were impacted crypto, and they did not (per the SEC & a quick read through of their 2018 10-Q's) sufficiently note that it's gaming growth was still driven to a material extent by crypto, thereby exposing them to even more downside risk than what had already occured.
Now I'm no lawyer nor taxman, and know not a lot of laws in the US, but judging only by the contents of this press release, it seems they were charged with not disclosing that the sales were for cryptocurrency mining, not for doing the business in the first place.
Which begs the question, does Nvidia have a responsibility to know exactly what their equipment is being used for, no matter if that activity is legal or not? Seems they would have to add a mandatory question asking "What are you gonna use this GPU for?" every time they sell a GPU, which seems weird (to me).
I'm reading this the same way as others but I've got a little bit different context. It is the responsibility of publicly traded companies to disclose known risks to their investors. Nvidia effectively got major market growth by knowingly selling and presumably prioritizing sales to an target audience that is known to be _extremely_ volatile.
It looks to me like Nvidia downplayed where their growth was coming from so investors (conjecture based on my own observations) couldn't accurately gauge the risk associated with their growth and that is where the SEC starts paying attention.
This is exactly right. You have to disclose risks to your business and if a really big part of your growth is coming from a new, volatile customer base, that's a big risk and you should disclose it. It has nothing to do with a specific requirement for GPUs or something; publicly traded companies _in general_ have a responsibility to understand where their revenue comes from and disclose that understanding to the public.
This is very run-of-the-mill stuff for the SEC. I think the only reason it's getting play on HN is that, if you aren't familiar with this sort of thing, it looks like the SEC is picking on Nvidia for doing business with crypto miners. But that isn't what the complaint is actually about.
What's surprising to me about this, is that if you ever read the risk section of a 10-k it is basically a bunch of non sense, where they imagine every possible risk no matter how small a business might have. It's filled with so many low probability scenarios it's barely worth reading. If they put in a blurb about this in the risks section I'm not sure who would even notice.
At first glance, I suspect that they just copy pasted the risk section from the last 10-k and this was just some mistake rather than an intention to deceive. Anybody who knew anything about the business understood that crypto mining was a sizable part of that demand.
I wouldn't say it's "exactly right" because the investors knew that's where the growth was coming from. Just because it wasn't in the 10-K doesn't mean that investors didn't know it was a risk.
The implication is how it holds for the most recent cryptomining cycle, since this settlement was for 2018 and we've definitely seen another surge in demand in 2021. Coupled with the chip shortage, this most recent cycle could well be bigger than this 2018 one.
Nvidia arguably hedged their bets better this time by 1) releasing their cryptomining-specific versions of GPUs, and 2) releasing drivers that tried to cripple the mining performance on the GeForce 3000-series lineup. But whether this was done in good faith is debatable and whether they disclosed properlyin the eyes of the SEC will be interesting to see.
What? The premise is very clear - NVIDIA stock has seen a meteoric rise off hugely increased sales, investors are concerned that nvidia is hiding the share of sales attributed specifically to a new volatile demographic (crypto in this case).
It’s like if Intel had 50% of their business from Apple and investors wanted to predict the impact of the M1 chip on their sales.
Not necessarily. There actually was significant growth in gaming with covid and there were lots of improvements with Nvidia's cards so it would be reasonable to assume most the growth is coming from that.
Public companies need to be ahead of risks for investors. If they weren't mentioning crypto mining in earnings reports then that doesn't look good at all.
> anyone with a brain knew the cards weren’t going to gamers
Gamers, and industry insiders, knew this. The general public (i.e. most investors) didn't. Most non-desktop gamers couldn't give two figs about the intricacies of the videocard market, they just invest in growing companies/stocks.
Or, to put it another way, NVidia Stocks go brrr, buy. Nvidia stock no longer go brrr, complain.
Maybe, maybe not. But the point isn't who the products were going to, it's just that the explosive growth was driven by an unusual, unpredictable customer base, and Nvidia should have disclosed that future growth would be affected if the cryptocurrency mining landscape (something far more volatile than the "regular" market for GPUs) were to change.
I agree that it seems dumb for the average investor not to know this, but this is just how this sort of thing works.
What's confusing to me is I swear I've read press releases from Nvidia that have clearly said "we're not adding new GPU production capacity because cryptocurrency miners are creating a demand bubble that's going to pop." Maybe from 2019 though, so maybe they were just waking up to it in 2018.
They got themselves in terrible in 2018 because they had a lot of excess inventory from over building when the crypto boom happened. I believe the stock dropped 20+% because of this.
> My goodness though, anyone with a brain knew the cards weren’t going to gamers. Was this not known to the average investor?
If it was so obvious, why did Nvidia never say it? This is a quote from a transcript, and seems representative of how they put it:
> ... I would say the large majority of the cryptocurrency demand [is for those] specialized products. There are still small miners that buy GeForces here and there, and that probably also increased the demand of GeForces.
While it may be true that everyone knew they were lying or being misleading, that isn't a very good defense.
A funny thing that nvidia was rumored to have done at the end of last year involved them shutting down production of cards. It being the holiday season, people may have settled and bought a card at a higher price, and them stopping production would make the item scarcer. Thats one way to look at it, but I also wondered if nvidia stopped production because they knew that their sales and revenues and profits would all take a hit in q4 2022 and didn’t want the decline to look uncontrollably drastic to investors in the earnings report that would come out in early 2023…
That ended up being completely fake. NVIDIA revenue and volumes have actually been on the incline ever since 2020, there was no reduction in production, and this shows up both in their financials and in actual measurements like the Jon Peddie Research GPU market reports (which are the gold standard for this) and Steam Hardware Survey (more granular but perhaps less accurate numbers). They are actually pumping volume even more this quarter on top of not having reduced them as some previously predicted.
> Q4’21 sees a nominal rise in GPU and PC shipments quarter-to-quarter
NVIDIA is like Apple, there's a certain clique that really really hates them and is willing to make shit up and see what sticks, and there's a huge number of people willing to automatically believe the worst, because "green man bad". It's utterly irrational and goes far beyond the technical merits, people have a viscerally negative emotional reaction to these companies and it's mostly not fact-based, it's just the result of two decades worth of fanboyism and grudges.
(I expect this reply will be followed by a bunch of people trying to list off everything bad they think NVIDIA has ever done, a lot of which will have been "massaged" by that same clique. Like bumpgate... but AMD had tons of GPU failures due to bad solder bumping in the 2012 timeframe too, that's why "baking your GPU" was a thing for everyone. Etc etc. NVIDIA is the hillary clinton of companies... they're a broadly competent competitor who does a decent job, but a decade worth of propaganda has convinced everyone that gosh, there must be something there, because I keep hearing about them!)
Yep, why I pointed this out to be a rumor. The linux gaming community makes nvidia cards out to being total bricks on linux, and so far I haven't had any issues I could tie to exclusively using an nvidia card (it actually runs some older games better than the AMD I had before it).
> It is the responsibility of publicly traded companies to disclose known risks to their investors.
Legally maybe(?) but practically this makes no sense. In the real world it is the responsibility of an investor to understand what they are investing in while maintaining skepticism and scrutiny of their investment. If you can't identify the correlation between massive gains in crypto value with massive gains in NVDA, you shouldn't be investing in NVDA.
I think most is doing a lot of work there. No one I know who games or does CAD is mining crypto because it's in no way worth it and I imagine there's nothing but anecdata for your statment either.
Orthogonal to the issue at hand, but for what little it's worth, literally nobody I know who games is mining. And this includes a lot of tech-savvy IT professionals.
(half a decade ago, one person I knew was getting excited/contemplating it; but he was looking to build a dedicated mining rig, and I don't think he ever followed up)
> most people who own a single gpu also play games and occasionally use it for mining.
Most people with 1 GPU use it to mine? I would have guessed that even with things going crazy in the cryptocurrency space pure gamers were a vastly bigger group.
This risk is the risk of people not wanting the product a company is selling. Philosophically speaking, it is the job of investors to figure that one out, not the company. Capitalists are meant to decide where the capital gets deployed and all that. Customers deciding to do things differently isn't the sort of operational risk that companys are meant to be experts in.
I don't see how Nvidia can reasonably be expected to know who is using their graphics cards for what either. Unless they are actively courting a specific segment, and even then these things are general purpose cards.
>Philosophically speaking, it is the job of investors to figure that one out, not the company
It's less about who should know, and more about the fact that NVidia does know. And, in knowing, it is obligated to provide accurate information.
NVidia is also actively courting a specific segment. They have introduced crypto-specific chips as well as hash rate limiters in GPU gaming chips, so they are clearly aware of how mining may be a factor in gaming GPU sales.
> prioritizing sales to an target audience that is known to be _extremely_ volatile.
Every crypto growth cycle is assumed (by enthusiasts) to be more resilient than the prior growth cycle, on the path to steady growth, and this has turned out to be true, with longer and longer steadier growth cycles, with less and less amplitude in the growth and troughs.
in 2018 there was the same optimism, that culminated in a long steep crypto bear market, the longest one so far. Although I think it is obvious that bubbles pop, especially crypto bubbles, I don't think it was obvious or relevant that sales to miners would disrupt so immediately that Nvidia investors needed to know this level of nuance. miners have such high profit margins (if integrated properly) that steep declines in crypto prices shouldn't affect them, but in this case it did.
Especially when looking at the resilience and structure of the mining sector now.
I think this is an odd demand by the SEC, but Nvidia settled it for pennies so moving on.
>>Which begs the question, does Nvidia have a responsibility to know exactly what their equipment is being used for, no matter if that activity is legal or not?
They are being charged not for not knowing, they are being charged for knowing and not disclosing it. The "knowing" part seems to be a forgone conclusion, or at least SEC must have ironclad proof.
>> Seems they would have to add a mandatory question asking "What are you gonna use this GPU for?"
No, but if they are selling thousands of GPUs to cryptominers, they don't need to ask to know. Same how if the US Airforce purchased 100k GPU chips, you can safely assume they won't be using them to play Fortnite, no questionnaire necessary.
The Airforce has flight simulators and other video games for which it must use GPUs. Additionally there are ML models to build and so on. Of the things I would predict, crypto mining would be the least of them.
Of course, but when you are disclosing your business activities, selling to the military is a pretty major thing to mention, no? You wouldn't just lump it all under "gaming", because your gpus might be used to play video games.
> Same how if the US Airforce purchased 100k GPU chips, you can safely assume they won't be using them to play Fortnite, no questionnaire necessary.
My intention was to gently counter this statement. I took Fortnite as a proxy for video games and I meant to add to the conversation that it does use video games. For a while the military was even publishing video games.
The issue here wasn't whether they should have known, but that they (apparently) did know and didn't disclose it. Whether NVIDIA has a duty to know is not at issue here, since they did:
> NVIDIA had information, however, that this increase in gaming sales was driven in significant part by cryptomining
Color me a little surprised that this is what SEC's Crypto Asset is spending resources on when there is such a dumpster fire of obvious fraud in other areas of crypto (looking at you, public mining companies), but I suppose NVIDIA's upswing did catch a lot of retail investors.
You're absolutely right this is the least of the crypto dumpster fires / fraud situations.
But the official disclosures of public equity firms is one of the lampposts the SEC's clearly mandated to look under. In fact, crypto is essentially immaterial here. If NVIDIA knew that a huge part of their GPUs were being used for the new, highly-volatile fad of Quantum Fubaring instead of the gaming market NVIDIA'd previously disclosed was the market target, the SEC would still have the right and responsibility to ding them for deceptive or insufficient disclosures.
I don't think it is even that important whether they specifically enumerate the destination of the cards. The important thing is that they should create an honest projection and risk assessment. When they present their earnings statement they need to indicate not only how much they sold but how much they expect to sell in the future. If they knew that a large portion of cards were going to cryptominers then they need ed to indicate the potential difference in growth stability between those sales and the normal consumer sales.
There’s been prevalent rumors in the gaming community that nvidia sold complete graphics cards to mining operations. A lot of times its waived off as the board partners (Asus, MSI, Zotac, etc) and not nvidia but nvidia does sell reference (they call them founders edition) cards. Also there was this big thing in december where there were rumors of a 12gb 2060 design that would alleviate gamer demand but it turned out the whispers that came out of the rumor mill itself a week before the release was that those gpus were made with the top priority of going to miners and not gamers. When examples of those cards came to market they were going for ~750 dollars in january, but now nvidia and board partners seemingly have pie in their face with those cards rotting on shelves at microcenters for $389 (the 2060 is a previous generation card and its original msrp was 329 in 2019).
The sec may be starting an investigation from the top down to see if nvidia had any involvement in what they are accusing them of and will see what degree of complicity they and board partners had in all of this.
Anyways I’m jumping the gun a bit there but there are distinct differences between cards for typical consumer uses (gaming, and video and machine learning workflows) and mining, and mining was a big part of the reason why prices were insane (a 3070ti which can now be found on sale for 699 was going for 1900+ dollars on amazon at ethereums peak) since January of last year until the recent gradual descent in prices.
> NVIDIA had information, however, that this increase in gaming sales was driven in significant part by cryptomining. Despite this, NVIDIA did not disclose in its Forms 10-Q, as it was required to do, these significant earnings and cash flow fluctuations related to a volatile business for investors to ascertain the likelihood that past performance was indicative of future performance.
You have to disclose what you know. It's fine to say "We know people are buying them, but we do not have metrics as toward their use" assuming that's a factually true statement (your business does not collect metrics from sales channels or consumers giving you an indication toward their use). A terrible way to run a business, but legal!
However, if your data indicates that most of your revenue growth is likely due to crypto mining and you turn around and tell investors it's because of gaming, you are lying and misleading your investors.
Public companies have a responsibility to disclose any known risks that are material to their performance.
It could be argued that they don't have a responsibility, or only a limited one. But in this case they really can't that they're actually unaware of it's use for mining. It's not necessary on an individual person-by-person basis, they know that a substantial amount of hardware is used for it.
Perhaps they don't know exactly how many or what %, but a little bit of market research-- over an issue highly material to their bottom line-- would be expected (and was probably done, but maybe they're bad at their jobs). At a minimum it's trivial to see that sales are correlated to the crypto market.
Also AMD managed to note the risk in its own 10-Q filings.
NVIDIA is required to monitor material risks to its business and disclose them to shareholders. I think in theory the reason for that requirement is so that unsophisticated retail investors don't buy the stock and then lose a bunch of money due to risks they didn't anticipate, though it feels pretty quaint to expect retail investors to read Forms 10-Q.
Importantly, they did (according to the press release) know that a big part of their sales growth was from cryptomining. I have no idea how they measured the magnitude, but miners weren't exactly quiet about scooping up graphics cards.
They do not need to police it. But how their products are used has an impact on the growth of the company as it can affect future demand; it appears that if the company has this sort of knowledge it is supposed to disclose it to investors.
> NVIDIA did not disclose in its Forms 10-Q, as it was required to do, these significant earnings and cash flow fluctuations related to a volatile business for investors to ascertain the likelihood that past performance was indicative of future performance.
Basically they were dishonest about the nature of the business that was driving the short term growth.
> NVIDIA did not disclose [...] for investors to ascertain the likelihood that past performance was indicative of future performance.
I mean, who am I to argue with SEC, but "past performance is not indicative of future results" should be firmly planted in the minds of everyone remotely capable of understanding the 10-Q.
To me this seems like it was a "hey, you should definitely split out crypto earnings in your gaming division" with a slip on the wrist. Doesn't sound like a big deal.
And going on the tangent, who says earnings due to crypto are more risky than earnings due to gaming? There's been a dearth of new AAA titles and due to the inflation gamers may very well delay their PC upgrade. Sounds as risky as miners to suddenly stop buying equipment, and faster than what the hardware-hungry gaming crowd can get their hands on.
They don't need to police how their GPU's are being used.
They simply need to release fiancial statements which accurately reflect material information they know.
That securities law can be abused unscrupulous profit seeking lawyers is not news, and isn't really germane to this case. The issue at hand was disclosing information essential to financial results rather than fanciful hypothetical risks.
> it feels pretty quaint to expect retail investors to read Forms 10-Q
It's not that there's an expectation that retail (or any given) investor reads the 10-Q; it's sufficient that there is a standardized way to publicize that information and, if you lose money because you didn't read the readily available information, well, you're an adult who can make investment decisions on whatever criteria you want and that's on you.
I don’t think this makes sense. The SEC isn’t there to protect the share holders, I don’t know wtf this is.
The only thing they could be required to disclose was the percent of sales THEY KNEW were being used for crypto. They also wouldn’t be required to capture that data really. Plus I’ve been on their quarterly calls, they’ve been pretty open about their exposure to crypto so idk.
This seems well beyond the scope of the SEC... imo it’s their broader plan to go after crypto, but everyone knows they have no legal basis currently to do so.
> does Nvidia have a responsibility to know exactly what their equipment is being used for, no matter if that activity is legal or not?
In aggregate .. yes.
As a company, you should know if the increase in sales for your product was a result of the gaming market growing, or the research market growing, or the crypto market growing.
And as a publicly traded company, you have to communicate this to investors.
>Seems they would have to add a mandatory question asking "What are you gonna use this GPU for?"
I think it's ridiculous. I think if the government wants you to "declare" something they need to make it explicit and how important that is to "declare". This is probably just someone in that department trying to get their name in trade rags in order to get a promotion.
I don't think you HAVE to know, but let's say you don't know, now you better not make a statement like you do know in you're earnings report. Or if you do and you make a false statement ...
The issue is that they knowingly misinformed their investors.
>In two of its Forms 10-Q for its fiscal year 2018, NVIDIA reported material growth in revenue within its gaming business. NVIDIA had information, however, that this increase in gaming sales was driven in significant part by cryptomining.
Note that this is the announcement of a settlement. Nvidia agrees to pay 5.5 million, agrees to state the risk, and doesn’t admit to fault. No one is in serious trouble... nvidia should have indicated the risk, and didn’t... (probably because someone in legal fucked up). It’s not like investors didn’t know this was a risk!
Exactly. This is a light slap on the wrist for not including a two sentence blurb in the "risk factors" section that no sophisticated investor relies upon. But as a public company, they are supposed to make things clear for unsophisticated investors.
I’m intrigued by the fact that the press release focuses on cryptomining, specifically, but also suggests that the issue has to do with fiduciary duty. Would Nvidia have been charged if they had failed to disclose a similar volume of sales to, say, scientific research labs?
In other words, is this about the US’s policy towards (foreign?) crypto operations, or is it “just” about nvidia’s investors?
Legally, yes it would be the same situation. If they were tracking research labs buying product and then got something wrong about it on their disclosure they'd be in the same situation.
Legally it is all about the disclosure.
Conspiracy minded crypto super fans might find it hard to believe but ultimately this is a small slap for a dorked up disclosure that can be easily avoided by Nvidia. The amount of crypto related purchases could be 100% and as long as Nvidia doesn't dork up disclosing that (or even saying what they know accurately) nothing happens here.
I just bought an RX 6600, for about $320. It's definitely not the latest GPU, not even close, but it made me realize something:
Because of the GPU shortage, game makers couldn't rely on enough users having the best/latest card, so now there is not much point in having, say, a RTX 3090, where a 3080 performs as well for most non-mining purposes.
Now, what if crypto enters a crisis (or ETH switches to PoS, which is less likely), and then the next generation of GPUs has almost no demand at the inflated triple-digit prices. That's going to be a huge hit to its market cap
When? The time frame on that page is "eventually" which more or less equates to "perhaps, someday". Until a date is committed to and the merge actually occurs Ethereum proof of stake will never be taken seriously.
>game makers couldn't rely on enough users having the best/latest card
Yup. Built a rig (2070S/3700X) just before covid/shortage kicked off and it has been holding up suspiciously well two years later - likely due to that effect.
3 year old card and no immediate need for an upgrade in sight.
> and then the next generation of GPUs has almost no demand at the inflated triple-digit prices. That's going to be a huge hit to its market cap
NVIDIA ('s distributors) still sale at the lower MSRP (right?) so the risk for them is people not buying them at all, which seems more farfetched
maybe I'm wrong, but I thought the true price was shown by what scalpers could fetch, which means the places the scalpers buy from had the wrong lower price
This seems to be the crux of the case, which the document clarifies has been settled:
> In two of its Forms 10-Q for its fiscal year 2018, NVIDIA reported material growth in revenue within its gaming business. NVIDIA had information, however, that this increase in gaming sales was driven in significant part by cryptomining. Despite this, NVIDIA did not disclose in its Forms 10-Q, as it was required to do, these significant earnings and cash flow fluctuations related to a volatile business for investors to ascertain the likelihood that past performance was indicative of future performance. The SEC’s order also finds that NVIDIA’s omissions of material information about the growth of its gaming business were misleading given that NVIDIA did make statements about how other parts of the company’s business were driven by demand for crypto, creating the impression that the company’s gaming business was not significantly affected by cryptomining.
Some commenters are asking where the line gets drawn for the responsibility of disclosure. From this document, the SEC is saying that if material risks are known and not disclosed, that's a red line they will take action on.
” NVIDIA had information, however, that this increase in gaming sales was driven in significant part by cryptomining. Despite this, NVIDIA did not disclose in its Forms 10-Q, as it was required to do […]”
That seems to be main issue - they knew, but did not disclose.
Additionally Jensen Huang was specifically asked about it in the quaterly call and said that it wasn't significant part of the demand from that quarter. It made a lot of investors angry, as it was a very strange statement that didn't really make sense.
Interesting that the SEC didn't know while probably everyone in in the world knew at least since 2017 that graphics cards are hard to buy because of the cryptomining demand.
Maybe one these things that are so obvious and hence not explicitly mentioned.
Its not about whether the SEC knew. It is about whether nvidia properly incorporated that knowledge into their financial reporting. If nvidia knew how many of its cards were going to crypto then they needed to properly report that as a market segment that has different growth profiles than the standard gaming market. That way analysts could evaluate their projections more effectively.
"(2)to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or
(3)to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser."
They could state, or imply, that their sales growth is due to an increased demand in their core business. Which may be considered much better than the increased demand coming from a secondary, highly volatile, and potentially highly regulated business.
On the other hand I know Nvida and others are sensitive to how they're perceived by non crypto folks and would / could even accidentally try to downplay how much the price / sales are driven by crypto.
But you really shouldn't do that in an earnings report.
Maybe more investment. If you're an investor who thinks crypto is a flash in the pan whereas gaming demand is likely more permanent, if you are told the growth is gaming, not crypto, you'll be more likely to invest.
By not disclosing it they hide the fact that their core business growth may be at risk in case of a cryptocurrency crash. And they may know that if they sell directly to crypto miners.
I'm the first one to complain about "crypto bad" articles, but this is simply related to crypto mining, nothing else. It's sure to attract the crypto detractors crowd to complain about how crypto is destroying the environment, though.
Even an investor who has full faith in the crypto industry might not want to invest in a company deriving significant revenue from selling GPU mining hardware, because if the long-announced switch of Ethereum from proof of work to proof of stake ever happens, that revenue might drop massively, as other chains seem much smaller and/or less lucrative: https://whattomine.com
This is the SEC doing their job, giving a public company a reminder to be honest about their disclosures. The fine is insignificant and nobody is in trouble.
It has nothing to do with whether people could've read between the lines, whether NVIDIA has a duty to know what their products are used for, or anything like that. Just that they knew what was going on and told a small lie to bolster their finances. You should be able to read company financial disclosures and trust them.