Nvidia’s Q2 Revenue Dominated by Two Major Customers: What Does This Mean for Future Prospects?

Nvidia’s Q2 revenue saw a significant contribution from two key clients, amounting to approximately 40% of the company’s total earnings. The chipmaker reported record quarterly revenue of $46.7 billion for the period ending July 27, marking a 56% year-on-year increase primarily due to the AI data center boom.

However, further analysis revealed that a substantial portion of this growth might be attributed to just a few major clients. Specifically, one client accounted for 23% of the Q2 revenue, while another contributed 16%. The Securities and Exchange Commission filing does not disclose the identities of these clients, referring to them as “Customer A” and “Customer B.”

During the first half of the fiscal year, Customer A and Customer B collectively accounted for 35% of Nvidia’s total revenue. Four other clients contributed 14%, 11%, another 11%, and 10% of Q2 earnings, according to the company.

It is worth noting that these are direct clients, such as original equipment manufacturers (OEMs), system integrators, or distributors who purchase their chips directly from Nvidia. Indirect clients, like cloud service providers and consumer internet companies, procure Nvidia chips from these direct clients.

While it’s uncertain if prominent cloud providers such as Microsoft, Oracle, Amazon, or Google are Customer A or Customer B, they might indirectly be responsible for the massive spending. In fact, Nvidia’s Chief Financial Officer, Nicole Kress, stated that “large cloud service providers” accounted for 50% of Nvidia’s data center revenue, which in turn represented 88% of the company’s total revenue, according to CNBC.

This raises questions about Nvidia’s future prospects. Gimme Credit analyst Dave Novosel told Fortune that while “concentration of revenue among such a small group of clients does present a significant risk,” the positive aspect is that “these clients have ample cash reserves, generate substantial free cash flow, and are anticipated to invest heavily in data centers over the next couple of years.”