Should Investors Worry About Nvidia's Latest Hack?

In late Februrary, Nvidia's (NVDA -0.29%) internal network was hacked by a cyber gang known as Lapsus$0. The hackers threatened to begin leaking proprietary information if Nvidia refused to remove the lock on its GPUs that slowed down the mining of cryptocurrency.

In this video clip from "Semiconductor Revolution" on Motley Fool Live, recorded on March 3, Motley Fool contributors Jose Najarro, Billy Duberstein, and Nicholas Rossolillo discuss the hack and what it means for Nvidia investors in the short and long terms.

Jose Najarro: Nvidia says that, they confirmed that there was an incident, that some of their proprietary information is being leaked by hackers. The first thing is Nvidia itself hasn't shared much in press release, they just have spokespersons talk with media companies to show what's happening. But if you go on social platforms, you can see a lot of the information there. One of the things that's being leaked the most is employee information and employee credentials which I think is insane. The second thing that they're leaking is supposedly these hackers have proprietary information from Nvidia. Right now they're saying, if Nvidia doesn't meet their demands by Friday, they're going to leak out all this information. I don't remember if I have the demands right now on me, but I think it's to have some of their graphics. For those that are familiar, Nvidia is known for their graphics processing units, and they recently slowed down the ability to mine cryptocurrency with their graphics cards. One of the demands is, "Hey, can you just leak the information so us, if we want to make these graphics mine a little bit better, we can do it. If you don't do that, then we'll just leak all the information that we have for you right now." The funny thing is, there are a few hackers that have made themselves known that we are responsible for the hack, and they also said that while they were hacking Nvidia, Nvidia responded by hacking back to them and locking their computers. I thought that was pretty, I don't know if funny is the word, but interesting in that remark. Let me go with Nick. Nick, any thoughts on this hack, and are there any worries for you. I'm not sure if you're an Nvidia investor but if you were, are there any worries that you would have at the moment?

Nicholas Rossolillo: I've owned Nvidia for many years. I actually thought that when they hacked the hackers back, it's really indicative of Nvidia's culture. I enjoy the company and they're very confident and very self-assured, I think, in their future as it's indicative of that. As far as concerns go, I think a lot of this deed has to do with that. It's called the hashing algorithm, basically the speed in which you could mine cryptocurrencies with GPU. Nvidia originally did that. They reduced the hashing algorithm on their GPUs to make sure that gamers were getting the GPUs because the last time the crypto market crashed back in 2018, that was a big reason why crypto crashed, and then suddenly all of this demand from miners suddenly dried up. They basically wanted to get ahead of the curve on this, and make sure that the people that wanted to play video games were getting the cards and that cryptocurrency miners were second in line, I guess you could say. I think it's a small business for Nvidia. I think gaming is the majority, so I'm not sure how big of a deal this is for the company. I'm not personally concerned.

Najarro: Definitely. As an investor, I'm not too concerned at the moment. I think maybe if Nvidia doesn't meet with the demands, we'll see a little bit more on Friday what they really have. Maybe we can just change our opinions there if anything else. Billy, any thoughts here?

Billy Duberstein: Not really. Nick is more of an expert in Nvidia than I am. It looks like you expect the hackers are somewhere in South America, and it has to do with crypto. My non-professional opinion on this is that it's not something to worry about long term. I don't think there might be some proprietary data that gets leaked, but it's still going to be hard to replicate Nvidia's ecosystem of chips and software, I think. AMD and Intel, they have their own technology that they're working on. I don't know if they become aware of some of this data. I'm not sure if they could incorporate some of it into their workloads, but Nvidia has shown it can innovate pretty quickly so while unfortunate and maybe a little embarrassing, I wouldn't necessarily let it change my long-term thesis on the company.

Najarro: Billy, I think you mentioned something really good there. It's even though there are competitors for Nvidia like AMD and Intel, they're all working in their own form of architecture or platform that they're building. Even if some of these companies, hey, take a quick look at what's within this thing. It doesn't necessarily mean they can use it in any way. That's important. Pretty much it's like that's probably not just in semiconductor industry and a lot of big tech markets as well. The great thing is, maybe by the time they decipher that information, its new technologies are already here so the innovation continues. I want to say maybe push back some of these concerns here.