Nvidia Stock Drops Amid Broader Chip Rally On Losing Crypto-Mining Fraud Appeal: Retail Still Bullish

Shares of Nvidia fell over 2% in midday trading on Friday, diverging from a broader rally in semiconductor stocks led by Broadcom’s milestone entry into the trillion-dollar valuation club. 

Nvidia’s drop followed the U.S. Supreme Court’s decision to dismiss the company’s appeal in a lawsuit alleging it misled shareholders about its reliance on cryptocurrency mining revenue leading up to the 2018 market crash.

The semiconductor bellwether has faced additional pressure this week with shares declining nearly 4% amid anti-trust investigations by Chinese and European authorities. 

This slump has caused the company to lose its position as the world's most valuable chipmaker, now trailing Apple and Microsoft in market capitalization rankings - but retail sentiment remains optimistic.

The lawsuit in question accuses Nvidia and its CEO, Jensen Huang, of violating the 1934 Securities Exchange Act. 

It alleges the company made false or misleading statements about how much of its revenue was driven by sales to cryptocurrency miners during the crypto boom of 2017-2018. 

When mining profitability collapsed in 2018, Nvidia's revenue fell short of expectations, triggering a sharp drop in its stock price of nearly 28% in two days, resulting in significant losses for investors. 

At the time, Huang said a “crypto hangover” was to blame.

The Supreme Court dismissal came weeks after justices questioned whether the case presented broad legal implications warranting their intervention.

“I’m not actually sure what rule we could articulate that would be clearer than our cases already say,” Justice Sonia Sotomayor said during the Nov. 13 argument.

Nvidia Sentiment and Message Volume on Dec 13 as of 12:45 p.m. ET | Source: Stocktwits

Despite the market being bearish on Nvidia, retail sentiment around the stock has improved to ‘bullish’ from ‘neutral’ a day ago along with an uptick in chatter to ‘high’ levels. 

Investors on Stocktwits remain hopeful that the current decline is merely a temporary correction, with expectations of a rebound.

This marks the second securities fraud case the Supreme Court has declined to hear within the past two months. 

In a similar move last month, the court rejected an appeal by Meta Platforms Inc., which now faces allegations of misleading shareholders over its role in the data-harvesting controversy involving Cambridge Analytica.

Nvidia remains one of the year's top-performing stocks, boasting a 176% gain year-to-date despite recent setbacks.

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