Nvidia shareholders hit the jackpot. They’re suing anyway.

The Nvidia office building is shown in Santa Clara, Calif. (Jeff Chiu / AP Photo)

It’s difficult to muster much sympathy for investors who bought Nvidia stock in 2017 — those who held on have since enjoyed gains of 3,400 per cent or more.

That hasn’t deterred plaintiffs’ lawyers from pressing a securities fraud class action, opens new tab against the chipmaking giant for nearly eight years, rooted in what proved to be a temporary slide in Nvidia’s share price during ​the crypto-market turbulence of 2018.

Now, the plaintiffs may be closing in on a pivotal victory. The case is before the Ninth U.S. Circuit Court of Appeals in San Francisco after ‌a federal judge last month granted class certification – a make-or-break moment in securities fraud litigation.

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San Jose, California‑based Nvidia has asked the appellate court to take the unusual step of intervening before the lower court proceedings are complete. The company wants the 9th Circuit to overturn U.S. District Judge Haywood Gilliam Jr.’s order certifying a class, opens new tab of investors who allege Nvidia downplayed its dependence on volatile cryptomining‑related revenues in 2017 and 2018.

Nvidia did not respond to a request for comment. The company’s outside counsel from Milbank and Cooley argue in ​court papers that Ninth Circuit guidance is urgently needed to “clarify two legal questions of enduring confusion” in the circuit.

First, they say Gilliam misapplied U.S. Supreme Court precedent in determining whether any alleged misstatements by ​company leaders actually affected Nvidia’s stock price. Second, they argue the judge erred by certifying the class without requiring plaintiffs to present a detailed model for calculating damages – ⁠an argument that’s recently gained traction in other circuits.

Nvidia’s appeal has drawn amicus support from some of the heaviest hitters in the securities defense bar, including the U.S. Chamber of Commerce, the Securities Industry and Financial Markets Association ​and the National Association of Manufacturers.

The case presents “perhaps the two most litigated issues at class certification in securities cases,” said Sullivan & Cromwell co-chair Robert Giuffra Jr., who filed an amicus brief, on behalf of seven former U.S. Securities and Exchange ​Commission officials and law professors siding with Nvidia.

Plaintiffs’ lawyers from Kessler Topaz Meltzer and Bernstein Litowitz Berger and Grossmann did not respond to requests for comment. In court papers, they argue the case satisfies all requirements for class certification and mirrors other recent securities suits in the Northern District of California that have been certified.

Nvidia shareholders led by Stockholm, Sweden-based investment management firm E. Ohman J:or Fonder AB filed a suit in December 2018 after the company’s revenue fell short of projections.

Gilliam dismissed the case in ​2021, but the 9th Circuit revived it, finding the plaintiffs adequately alleged that Nvidia and its CEO Jensen Huang made “false or misleading statements and did so knowingly or recklessly.”

The U.S. Supreme Court agreed to hear the case in 2024, ​only to dismiss it, opens new tab after oral argument as improvidently granted. The matter was sent back to Gilliam.

In a 50-page order on March 25 certifying the class, Gilliam dove into what Nvidia and Huang told investors in 2017 and 2018 about the company’s ‌cryptocurrency business. For ⁠example, Huang said, “Crypto is small for us,” and “Our core business is elsewhere.”

Plaintiffs say those assurances masked the truth — that crypto played a larger role in Nvidia’s revenue than the company let on. Beginning in 2017, as the price of certain cryptocurrencies rose, Nvidia’s chips became increasingly popular for cryptomining, a process that involves performing complex math equations in order to secure cryptocurrencies. But when crypto prices fell, so did demand for the chips.

The reckoning came in November 2018, when Nvidia reported that it missed its third quarter revenue target by two per cent amid a “sharp crypto falloff.” Company stock plunged 28.5 per cent over two trading sessions.

To state a securities fraud claim, plaintiffs must show they relied on misstatements – ​and, crucially, that the alleged misstatements had a price impact. ​What’s tricky is determining whether Nvidia’s earlier, general ⁠comments about crypto actually inflated its stock price.

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Nvidia argues its November disclosures did not “correct” any earlier misrepresentations. Pointing to the U.S. Supreme Court’s 2021 decision in Goldman Sachs Group Inc. v. Arkansas Teacher Retirement System, the company contends there was a fatal “mismatch” between the prior, high‑level statements downplaying crypto’s importance and the later, more specific disclosures about third-quarter ​revenue.

While acknowledging “some mismatch,” Gilliam was not convinced the front-end comments had zero impact. He pointed to remarks by analysts, who found the November revelations at odds ​with Nvidia’s prior assurances minimizing crypto ⁠exposure.

Gilliam also rejected Nvidia’s challenge to the plaintiffs’ damages model. The judge held that plaintiffs’ expert had proposed a viable “out‑of‑pocket” methodology for calculating class‑wide damages, even if the details would be worked out later – a conclusion Nvidia says conflicts with the Supreme Court’s 2013 decision in Comcast Corp. v. Behrend.

Similar disputes are percolating elsewhere. The Fourth U.S. Circuit Court of Appeals is weighing the question in a securities fraud case against Boeing, and the Sixth Circuit last year decertified a class action against Ohio ⁠utility FirstEnergy in ​part because of flaws in the plaintiffs’ damages model.

Either the price‑impact or damages question could be enough for the 9th Circuit to ​take up Nvidia’s appeal — and potentially throw the company a lifeline.

At an April 21 status conference before Gilliam, Nvidia’s lawyers offered few hints about whether the company would risk taking the case to a jury if class certification survives.

In the meantime, Gilliam ordered both sides to submit ​their best estimates of how long a trial might take.

“Both parties are saying it’s premature to estimate the length of the trial, but it isn’t,” Gilliam said. “I have to block it out on my calendar.”

Reporting by Jenna Greene