Nearly Half of Nvidia’s Revenue Comes from Just Four Anonymous Whale Customers

AI chip demand drives Nvidia’s explosive growth: Nvidia’s second-quarter revenue more than doubled, largely due to purchases from just four major customers in the data center and AI chip market.

Key revenue figures: Nvidia’s quarterly turnover reached $30 billion, with four anonymous customers accounting for 46% of total sales, or approximately $13.8 billion.

• Each of these four customers contributed more than 10% to Nvidia’s overall revenue.
• The combined purchases from these four customers exceeded Nvidia’s entire revenue for the same quarter in the previous year.
• All purchases were related to Nvidia’s booming data center and AI chip business.

Potential identity of major customers: While Nvidia kept the names confidential for competitive reasons, the list likely includes tech giants heavily investing in AI infrastructure.

• Probable customers include Amazon, Meta, Microsoft, Alphabet, OpenAI, or Tesla.
• These companies require Nvidia’s advanced AI chips, such as the H200, for training large language models and powering inference processes in AI applications like ChatGPT or Sora.

Concerns over sustainability: The concentration of revenue from a small number of customers has raised questions about the long-term sustainability of Nvidia’s growth.

• Some investors, including Elliott Management and Citadel, have expressed skepticism about maintaining this growth trajectory.
• The semiconductor industry’s history of boom-and-bust cycles adds to these concerns.
• Nvidia’s stock is expected to open lower, underperforming the broader equity market.

Profitability and business concentration: Nvidia’s reliance on these major customers has led to impressive profit margins but also potential risks.

• The company earned $5.60 in net income for every $10 of revenue in the first half of the year.
• Profit after tax nearly quadrupled to $31.5 billion during this six-month period compared to the previous year.
• Nvidia flags this concentration of revenue as a potential risk in its regulatory filings.

Rapid growth in customer spending: The data suggests a significant and sudden increase in spending from some of Nvidia’s major customers.

• Two customers, identified as “Customer B” and “Customer C,” each contributed 11% of Nvidia’s $30 billion revenue in the second quarter.
• These customers’ contributions exceeded the revenue of Nvidia’s entire gaming division, which stood at $2.9 billion.
• Both customers were below the 10% threshold for the entire first half, indicating a substantial ramp-up in spending during the second quarter.

CEO’s perspective on diversification: Nvidia’s CEO, Jensen Huang, claimed the company is “relatively diversified today” in terms of demand sources.

• Huang cited a range of different customer groups in an interview with Bloomberg TV.
• However, the company’s own financial data appears to contradict this claim of diversification.
• In the previous year, no single customer accounted for 10% or more of total revenue in either the first or second quarter.

Analyzing deeper: Balancing growth and risk: While Nvidia’s explosive growth is impressive, the concentration of revenue from a few major customers presents both opportunities and challenges for the company’s future.

• The surge in AI chip demand has propelled Nvidia to new heights, but it also exposes the company to potential volatility if any of these major customers were to reduce their spending.
• As the AI industry evolves, Nvidia may need to diversify its customer base further to mitigate risks associated with over-reliance on a small number of whales.
• The company’s ability to maintain its technological edge in the rapidly advancing AI chip market will be crucial for sustaining its growth trajectory and attracting a broader range of customers.