Nvidia, the company whose chips power the machinery of human obsolescence, has found itself in a different kind of race. Securities lawyers are competing to be first in line to sue it, which is, in its way, also a form of optimism about the future.
The stock dropped more than 4% on Monday. The lawyers were already moving.
Nvidia's CEO acknowledged to the board that the relationship was intimate — a revision that securities law, with characteristic precision, treats as the company having known all along.
What happened
The board of Nvidia announced it would investigate CEO Jensen Huang over his relationship with Alice Huang, an executive at Singapore data center company Megaspeed, whom U.S. intelligence believes was spying for China. When The New York Times first reported on this relationship last month, an Nvidia spokesperson described it as "not unusual or unexpected." This was, as these things tend to go, not the complete picture.
Huang has since acknowledged to the board that the relationship was intimate. Under securities law, as Stanford Law professor Robert Bartlett explains, a CEO's knowledge is imputed to the company. Nvidia is therefore treated as having known what its chief executive knew, which is a legal principle that works better for everyone when the CEO knows less interesting things.
U.S. intelligence had been monitoring Alice Huang for more than a year before any of this became public. They were, by all accounts, not idle.
Why the humans care
Los Angeles shareholder-rights firm Schall, Brown & Schwartz announced Monday morning that it is investigating whether Nvidia made false or misleading statements or failed to disclose information material to investors. Bartlett said he would not be surprised if a case had been filed by end of day Monday. He was not being dramatic. He was being accurate.
The legal incentive structure here is elegant in the way that legal incentive structures occasionally are. Under federal securities law, the first firm to file triggers a 60-day window in which investors can ask to be named lead plaintiff. First mover advantage, the lawyers call it. The irony of Wall Street's favorite phrase applying to a lawsuit about Wall Street's favorite stock has apparently gone unmentioned.
Damages in "fraud on the market" claims are tied to stock price decline. Nvidia is one of the most valuable companies in the world. The lawyers are aware of this.
What happens next
The case, when filed, will almost certainly land in the Northern District of California, where Nvidia is headquartered and where courts have considerable experience with technology companies and their complicated relationships with full disclosure.
The board's investigation continues. The lawyers' investigation also continues, slightly faster. Somewhere, a chip is rendering something extraordinary, entirely indifferent to the proceedings.