The Supreme Court on Wednesday seemed likely to keep alive a class-action lawsuit accusing Nvidia of misleading investors about its dependence on selling computer chips for the mining of volatile cryptocurrency.
The justices heard arguments in the tech company’s appeal of a lower-court ruling allowing a 2018 suit led by a Swedish investment management firm to continue.
It’s one of two high court cases involving class-action lawsuits against tech companies. Last week, the justices wrestled with whether to shut down a multibillion-dollar class action investors’ lawsuit against Facebook parent Meta stemming from the privacy scandal involving the Cambridge Analytica political consulting firm.
On Wednesday, a majority of the court that included liberal and conservative justices appeared to reject the arguments advanced by Neal Katyal, the lawyer for Santa Clara, California-based Nvidia.
“It’s less and less clear why we took this case and why you should win it,” Justice Elena Kagan said.
The lawsuit followed a dip in the profitability of cryptocurrency, which caused Nvidia’s revenues to fall short of projections and led to a 28% drop in the company’s stock price.
In 2022, Nvidia paid a $5.5 million fine to settle charges by the Securities and Exchange Commission that it failed to disclose that cryptomining was a significant source of revenue growth from the sale of graphics processing units that were produced and marketed for gaming. The company did not admit to any wrongdoing as part of the settlement.
Nvidia has led the artificial intelligence sector to become one of the stock market’s biggest companies, as tech giants continue to spend heavily on the company’s chips and data centers needed to train and operate their AI systems.
That chipmaking dominance has cemented Nvidia’s place as the poster child of the artificial intelligence boom — what CEO Jensen Huang has dubbed “the next industrial revolution.” Demand for generative AI products that can compose documents, make images and serve as personal assistants has fueled sales of Nvidia’s specialized chips over the last year.
Nvidia is among the most valuable companies in the S&P 500, worth over $3 trillion. The company is set to report its third quarter earnings next week.
In the Supreme Court case, the company is arguing that the investors’ lawsuit should be thrown out because it does not measure up to a 1995 law, the Private Securities Litigation Reform Act, that is intended to bar frivolous complaints.
A district court judge had dismissed the complaint before the federal appeals court in San Francisco ruled that it could go forward. The Biden administration is backing the investors.
A decision is expected by early summer.
