Nvidia (NASDAQ: NVDA) is the world’s leading supplier of high-end graphics processing units (GPUs) for data centers — hardware that provides the computing power necessary for the development and use of artificial intelligence (AI) systems. The chipmaker can’t keep up with the enormous demand for its top GPUs, which is driving a growth surge across its business.
Nvidia just reported results for its fiscal 2025 second quarter (which ended July 28), and they topped all expectations with yet another triple-digit percentage increase in revenue led by GPU sales. However, a concerning trend is emerging beneath the surface: Nearly half of the company’s Q2 revenue came from just four customers, which appeared to be a big jump from the prior quarter.
This indicates that Nvidia is increasingly reliant on a handful of the world’s largest technology giants to drive its growth, which makes the company vulnerable if sentiment toward AI starts to shift.
Nvidia’s AI chips are the hottest product in Silicon Valley
Cloud computing giants like Microsoft (NASDAQ: MSFT), Amazon (NASDAQ: AMZN), and Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL) operate numerous centralized data centers filled with servers, leasing computing and storage capacity on those machines to millions of businesses that use it to store data, host websites, develop software, and more.
Now, those data center operators are bolstering their infrastructure with powerful GPUs and renting the computing capacity to AI developers — a practice Nvidia CEO Jensen Huang says can earn cloud providers $5 in instant hosting revenue over four years for every $1 they spend on Nvidia chips. However, those tech giants are also using their computing capacity to develop their own AI products and services to sell.
Tech companies that don’t offer cloud services are also investing heavily in AI data centers. Tesla (NASDAQ: TSLA) is using them to develop its autonomous self-driving software, and Nvidia says the automotive industry has been a key driver of GPU sales growth for that reason. Meta Platforms (NASDAQ: META) is using Nvidia’s chips to expand its Llama open-source large language models (LLMs), which will power several new AI features for Facebook and Instagram.
Nvidia’s H100 GPU set the benchmark for the AI industry last year, but during Q2, the company started ramping up shipments of its new H200, which can perform AI inference at almost twice the speed of its predecessor. However, all eyes are on Nvidia’s new Blackwell architecture, which will offer even greater performance.
The new Blackwell-based GB200 NVL72 system, for example, will perform AI inference a whopping 30 times faster than the equivalent H100 system. GB200 GPUs are expected to sell for somewhere between $30,000 and $40,000 each, which is similar to the original price of the H100, so they will deliver an incredible improvement in cost efficiency.
The GB200 will start shipping in high volumes during its fiscal 2025 fourth quarter (beginning in November), and Nvidia anticipates it will generate billions of dollars in revenue in the period.
Customer concentration is concerning
Nvidia generated $30 billion in revenue during fiscal Q2, which was a 122% increase from the prior-year period, and comfortably above management’s forecast of $28 billion. Data center segment sales, which were up by a whopping 154%, accounted for $26.3 billion of that total.
However, according to the company’s 10-Q filing for the second quarter, four customers that it did not name accounted for 46% of its $30 billion in revenue.
|
Customer |
Proportion Of Nvidia’s $30 Billion In Q2 Revenue |
|---|---|
|
Customer A |
14% |
|
Customer B |
11% |
|
Customer C |
11% |
|
Customer D |
10% |
Data source: Nvidia.
The share of concentrated revenue appeared to increase materially from just three months earlier. In its fiscal first quarter, mystery customers A and B together accounted for 24% of total revenue. Nvidia only singles out customers that account for at least 10% of revenue, so it’s possible there were other material buyers of its chips in Q1, but they came in shy of the 10% threshold during the period.
Investors should pay close attention to this trend because Customer A, for example, spent $4.2 billion with Nvidia during Q2 alone, and an eye-watering $7.8 billion in the first two quarters of fiscal 2025 overall. There are only a small handful of companies in the world that can sustain that kind of spending on chips and infrastructure.
In other words, if even two of Nvidia’s top customers cut back on their spending, it could lead to a significant drop in its revenue. Nvidia stock has soared by more than 600% since the beginning of 2023, catapulting the company’s market capitalization from $360 billion to about $2.6 trillion. Those gains could slowly evaporate if investors become skeptical of Nvidia’s ability to generate further sales growth.
Who are Nvidia’s mystery customers?
Here’s the good news: Nvidia’s top four customers are likely some combination of Microsoft, Amazon, Alphabet, Meta Platforms, Tesla, or even ChatGPT creator OpenAI, and each of them has deep pockets. Based on their public filings, we know most of those companies are spending mind-boggling amounts of money on their data centers.
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Microsoft spent $55.7 billion on capital expenditures during its fiscal 2024 (which ended June 30), most of which went toward data center infrastructure and chips. The company says it plans to spend even more in fiscal 2025.
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Amazon’s capital expenditures during the first half of 2024 alone were $30.5 billion, and it plans to spend even more in the second half to support the growth it’s seeing in AI.
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Meta Platforms expects its capital expenditures to come in somewhere between $37 billion and $40 billion for 2024, and it forecasts “significant growth” in that number for 2025 to support its AI projects. Meta’s Llama 3.1 LLM was trained on 16,000 H100 GPUs, but the company plans to expand its capacity to 600,000 H100 equivalents by the end of this year.
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Alphabet spent $25 billion on capital expenditures in the first half of 2024, and it expects to spend roughly the same in the second half.
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Tesla expects to spend a total of $10 billion on capital expenditures in 2024 as it works to bring a cluster of 50,000 GPUs online to advance the development of its self-driving software.
Considering that those companies intend to maintain the same infrastructure spending — or, in the case of Microsoft, Amazon, and Meta, increase it — Nvidia’s revenue pipeline looks robust for at least the next year.
However, there is competition coming online. Rival chipmaker Advanced Micro Devices forecasts substantial growth in its data center GPU sales this year. Additionally, Microsoft, Amazon, and Alphabet are designing their own AI chips right now, and while it could take years for them to achieve the same level of performance, their efforts pose a risk to Nvidia’s longer-term outlook.
Investors who own Nvidia stock have no cause for immediate panic, but they should keep a close eye on the company’s revenue concentration in upcoming quarters. If it continues to rise, the company could be at a higher risk of experiencing a steep drop-off at some point in the future.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
46% of Nvidia’s $30 Billion in Q2 Revenue Came From 4 Mystery Customers was originally published by The Motley Fool
