Hacker News Reader

Comment by TrueDuality | Hacker News Reader

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.

View on HN

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.

And enforcement actions like these are why the 10Ks are full of stuff like that.

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.

A risk to someone else is an opportunity for others. Risk is very subjective here

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.

My goodness though, anyone with a brain knew the cards weren’t going to gamers. Was this not known to the average investor?

I guess it doesn’t even matter because the $5.5 million fine is so laughably small for the rewards they reaped that I’m sure they are still laughing.

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.

It was for 2017-2018 though.

> 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.

Doesn't matter.

Nvidia needs to provide accurate information on revenues no matter if it obvious or not.

AMD doesn't even report sales of semiconductors for gaming consoles under gaming because it's misleading.

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.

They don't want to make that same mistake.

> 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.

Most people don't know what a graphics card is.

>anyone with a brain knew the cards weren’t going to gamers.

you answered this yourself.

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

https://www.jonpeddie.com/press-releases/q421-sees-a-nominal...

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.

Disclosure: long NVDA

Not defending nvidia but most people who own a single gpu also play games and occasionally use it for mining.

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.

Yes. Everything is a securities fraud. Expect sooner or later(mostly after a bad quarter) may be investors would sue.

> 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.

Reply on news.ycombinator.com