While demand for semiconductors continues to far outpace supply, Nvidia, one of the most prominent chip producers, lately has been facing a difficult streak.
Amid interest-rate-tightening by the Federal Reserve and supply-chain issues broadly hindering a broad range of industries, the Santa Clara, Calif., graphics-chip specialist's stock has dropped this year, closing on Thursday at $188.44. In the past month, the shares have fallen 23%.
Further, on May 6 the Securities and Exchange Commission said Nvidia had agreed to pay $5.5 million to settle charges of improper disclosure regarding the impact of cryptocurrency mining on its business.
Notification at Issue
The SEC alleged that the company "failed to disclose that cryptomining was a significant element of its material revenue growth from the sale of its graphics processing units designed and marketed for gaming."
Cryptomining, the process of verifying transactions that add new cryptocurrency tokens into circulation, requires GPUs, a specialized electronic circuit, to more quickly make those verifications.
In two of its fiscal 2018 quarterly reports, Nvidia “reported material growth in revenue within its gaming business,” an SEC statement said. ‘Nvidia had information, however, that this increase in gaming sales was driven in significant part by cryptomining.”
The agency said Nvidia did not disclose “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.”
Further, the agency said the “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."
That "[created] the impression that the company’s gaming business was not significantly affected by cryptomining.”
'Timely, Complete and Accurate'
In settling the agency's charges and agreeing to the $5.5 million penalty, Nvidia neither admitted nor denied the allegations. The company declined comment on the settlement.
“Nvidia’s disclosure failures deprived investors of critical information to evaluate the company’s business in a key market,” Kristina Littman, chief of the SEC Enforcement Division’s Crypto Assets and Cyber Unit, said in the statement.
“All issuers, including those that pursue opportunities involving emerging technology, must ensure that their disclosures are timely, complete, and accurate.”
Demand for semiconductors, which drive everything from phones to cars to medical devices to kitchen appliances, is raging as the pandemic eases.
Sales in 2021 were estimated by the Semiconductor Industry Association to rise over 26% from 2020, with an estimated nearly 9% increase this year taking the global figure past $600 billion.
A number of analysts, including Bank of America Securities, say Nvidia is poised to rebound.
One of the main concerns, the investment firm said, is weakness in the gaming business, which accounts for roughly 44% of Nvidia's sales, as well as loss of business due to Russia's war in Ukraine and pandemic lockdowns in China.
"We flag these headwinds, but argue investors could be underappreciating other supportive trends," Vivek Arya, a securities analyst at Bank of America, wrote in an April 12 note to investors.
These, he said, include strength in data centers, professional design visualization, and autos; a new gaming-product cycle in the second half; and low gaming-channel chip inventory.
