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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 (ma

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.

mgh2 4y ago
What about AMD?
- ineedasername 4y ago
  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. [1] https://ir.amd.com/sec-filings/filter/quarterly-filings/content/0000002488-22-000078/amd-20220326.htm?TB_iframe=true&height=auto&width=auto&preload=false https://ir.amd.com/sec-filings/filter/quarterly-filings/cont...
  - paulmd 4y ago
    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. https://www.fool.com/earnings/call-transcripts/2019/01/30/advanced-micro-devices-amd-q4-2018-earnings-confer.aspx https://www.fool.com/earnings/call-transcripts/2019/01/30/ad...
    - ineedasername 4y ago
      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.
- TedDoesntTalk 4y ago
  AMD may have disclosed it in their financial statements.
- KennyBlanken 4y ago
  Did AMD attribute sales to growth in gaming, not crypto?
paulmd 4y ago
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): https://www.tomshardware.com/news/rtx-3090-outsells-all-rx-6000-gpus https://www.tomshardware.com/news/rtx-3090-outsells-all-rx-6... (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. https://www.hardwaretimes.com/in-q4-amd-supplied-a-total-of-120k-ps5-and-xsx-processors-limiting-zen-3-and-big-navi-production/ https://www.hardwaretimes.com/in-q4-amd-supplied-a-total-of-... 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. https://www.fool.com/earnings/call-transcripts/2019/01/30/advanced-micro-devices-amd-q4-2018-earnings-confer.aspx https://www.fool.com/earnings/call-transcripts/2019/01/30/ad... 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. Fake spin: https://www.kitguru.net/tech-news/featured-announcement/leo-waldock/leo-says-56-did-nvidia-sell-175-million-of-gpus-to-miners/ https://www.kitguru.net/tech-news/featured-announcement/leo-... Actual article: https://twitter.com/dylan522p/status/1332502890104188929 https://twitter.com/dylan522p/status/1332502890104188929 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.
thereddaikon 4y ago
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.
- dsr_ 4y ago
  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.
  - allie1 4y ago
    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.
- nickff 4y ago
  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.

mgh2 4y ago

What about AMD?

ineedasername 4y ago
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. [1] https://ir.amd.com/sec-filings/filter/quarterly-filings/content/0000002488-22-000078/amd-20220326.htm?TB_iframe=true&height=auto&width=auto&preload=false https://ir.amd.com/sec-filings/filter/quarterly-filings/cont...
- paulmd 4y ago
  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. https://www.fool.com/earnings/call-transcripts/2019/01/30/advanced-micro-devices-amd-q4-2018-earnings-confer.aspx https://www.fool.com/earnings/call-transcripts/2019/01/30/ad...
  - ineedasername 4y ago
    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.
TedDoesntTalk 4y ago
AMD may have disclosed it in their financial statements.
KennyBlanken 4y ago
Did AMD attribute sales to growth in gaming, not crypto?

paulmd 4y ago

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): https://www.tomshardware.com/news/rtx-3090-outsells-all-rx-6000-gpus https://www.tomshardware.com/news/rtx-3090-outsells-all-rx-6... (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. https://www.hardwaretimes.com/in-q4-amd-supplied-a-total-of-120k-ps5-and-xsx-processors-limiting-zen-3-and-big-navi-production/ https://www.hardwaretimes.com/in-q4-amd-supplied-a-total-of-... 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. https://www.fool.com/earnings/call-transcripts/2019/01/30/advanced-micro-devices-amd-q4-2018-earnings-confer.aspx https://www.fool.com/earnings/call-transcripts/2019/01/30/ad... 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. Fake spin: https://www.kitguru.net/tech-news/featured-announcement/leo-waldock/leo-says-56-did-nvidia-sell-175-million-of-gpus-to-miners/ https://www.kitguru.net/tech-news/featured-announcement/leo-... Actual article: https://twitter.com/dylan522p/status/1332502890104188929 https://twitter.com/dylan522p/status/1332502890104188929 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.

thereddaikon 4y ago

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.

dsr_ 4y ago
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.
- allie1 4y ago
  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.
nickff 4y ago
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.