Last Updated on 05/09/2024 by Arun jain
Nvidia earned $30 billion in revenue for the second quarter, beating many analysts’ estimates for the period. About half of that came from four customers SEC Filings From the company.
That should keep investors on guard for the next year or two, Gil Luria, a tech analyst who covers Nvidia for DA Davidson, an investment firm, told Business Insider.
According to company filings, just four customers brought in 46% of Nvidia’s total Q2 revenue — about $13.8 billion.
The names of the companies have been withheld in the filing. Luria told BI that there is no disclosure law requiring Nvidia to disclose the names of its customers.
But there are likely to be customers Microsoft, Meta, AmazonAnd GoogleLuria said. All four companies are known to increase their GPU stockpiles as they aggressively pursue AI initiatives.
“The only way they’re not four is if one of their customers is a reseller,” Luria said, naming Dell and Supermicro as examples.
An Nvidia spokesperson declined to comment, and none of the four alleged customers responded to requests for comment.
Luria said it was “extremely unusual for a company at Nvidia’s scale” to lean on a handful of customers for a large portion of its revenue.
“None of the other mega caps have even 10% of customers,” a tech analyst told BI, referring to large companies with market capitalizations above $200 billion. until wednesday, Nvidia’s market cap 2.61 trillion dollars.
Luria maintained a hold rating for Nvidia stock, citing concerns around the sustainability of demand.
Emarketer’s tech analyst Jacob Bourne told BI that the high concentration of revenue may be unusual in the context of the broader market. But he said that’s common for tech companies that offer specialized products like graphics processing units.
Emarketer is a subsidiary of Axel Springer, which also owns BI.
Nvidia said in a 10-Q filing that it has experienced periods where the company has seen significant revenue from a limited number of customers and “this trend may continue.”
Back in 2004 — when Nvidia was bringing in a fraction of the revenue it sees today — Company’s 10-Q filing shows that just four unnamed customers brought in 51% of its total revenue in the third quarter. At the time, Nvidia was working with PC manufacturers such as Dell and Sony to provide GPUs for computer and gaming systems.
Luria told BI that Nvidia has historically maintained the same four customers — Microsoft, Meta, Amazon and Google — in its data center segment. But they are generally balanced by Nvidia’s gaming and auto segments, which have different customers.
“Currently there is increased customer concentration for NVDIA because the data center business is now a much larger portion of overall revenue,” Luria said.
He said this consumer concentration should be the primary concern of investors for the next year or two Reasons:
1. Big companies don’t rely on one source
Large companies “don’t like to be beholden to one vendor for any category,” Luria said.
“Just as Walmart doesn’t buy all its potato chips from one vendor, Microsoft doesn’t like to buy its computer chips from one company,” he said.
Microsoft has made it clear before, Luria added, how the company gradually moved away from Intel as its sole supplier for processors.
2. Nvidia demand may be temporary
Another reason investors are concerned is that these big Nvidia customers have indicated they are buying more GPUs without worrying about an immediate return on their investment, Luria said.
Companies have “communicated that they’re ‘over-investing,’ which means they’re making purchases without regard to the return on investment, usually not one that’s very long-term,” Luria said.
Meta CEO Mark Zuckerberg told shareholders during an earnings call in April that any growth in his company’s AI business “could take several years” — so the current feeding into Nvidia chips from big customers could be overwhelmingly temporary.
That doesn’t mean Nvidia will lack customers.
Emarketer analyst Bourne told BI that Nvidia has a long list of customers who want to buy the company’s chips.
“Just because there are currently these handful of companies that actually make up the lion’s share of Nvidia’s revenue, that doesn’t mean that’s always going to be the case,” he said. “We could see an influx of new large customers and, of course, nation-states could be among the buyers of a significant number of these chips.”
3. Increased competition
There are also more competitions coming up Nvidia.
Google and Meta announced new in-house chips for AI development earlier this year; Microsoft unveils its custom AI chips in late 2023; And Amazon is developing its own chips to avoid paying for expensive Nvidia GPUs, BI’s Eugene Kim previously reported.
“All these companies are in various stages of deploying their own chips for AI,” Luria said. “Google and Amazon have been doing this the longest which means their technology is already competitive with Nvidia, and Microsoft and Meta are catching up.”
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