Nvidia's Reliance on Two Key Customers: A Red Flag for AI Growth Stock?

Nvidia's revenue in its latest quarter was heavily reliant on two customers, referred to as Customer A and Customer B, who accounted for 39% of total revenue. The company's supply chain is complex and dependent on numerous suppliers, equipment designers, and manufacturers. Similar to Broadcom, Nvidia's AI sales growth is heavily dependent on a handful of hyperscaler customers. This dependence on a few key customers is a risk that investors should monitor.

Nvidia Corporation's (NVDA) latest quarterly financial report reveals a significant dependence on two key customers, referred to as Customer A and Customer B. These customers accounted for 39% of Nvidia's total revenue, underscoring the company's reliance on a few major hyperscaler customers for its AI sales growth. This dependence is a risk that investors should closely monitor, as it could impact the company's long-term financial performance.

In its fiscal 2025 second quarter, Nvidia reported that Customer A contributed 23% of total revenue, while Customer B accounted for 16%. This represents a substantial increase from the previous quarter, where these two customers combined to contribute 30% of total revenue. Without these two key customers, Nvidia's revenue would have decreased by $2.36 billion quarter-over-quarter [3].

Nvidia's supply chain is complex and involves numerous suppliers, equipment designers, and manufacturers. Similar to Broadcom, Nvidia's AI sales growth is heavily dependent on a handful of hyperscaler customers. This concentration of revenue from a few key customers poses a potential risk, as any significant changes in these customers' business operations or demand could have a substantial impact on Nvidia's financial performance.

Investors should also consider the broader market dynamics. Citi recently lowered its price target on Nvidia to $200 from $210, citing signs that Broadcom (AVGO) may be advancing more quickly in the race for AI-related processors [2]. Broadcom's recent comments on stronger year-over-year growth for its XPU chips highlight potential risks for Nvidia's long-term sales. Broadcom has pointed to demand from both new and existing customers, with Google reportedly among the companies adopting its technology. This shift could indirectly intensify pressure on Nvidia, especially as Google expands compute offerings to rivals like Meta Platforms, OpenAI, and Oracle.

In conclusion, while Nvidia's dependence on a few key customers is a risk worth monitoring, it is important to note that the company's supply chain is complex and involves numerous stakeholders. The company's ability to diversify its customer base and mitigate this risk will be crucial for its long-term success. Investors should closely follow Nvidia's financial performance and any updates on its customer base to make informed investment decisions.

References:
[1] https://www.nasdaq.com/articles/zacks-investment-ideas-feature-highlights-broadcom-nvidia-amd-meta-platforms-and-alphabet
[2] https://www.tradingview.com/news/gurufocus:02b552739094b:0-nvidia-shares-climb-despite-citi-trims-target-on-broadcom-ai-threat/
[3] https://finance.yahoo.com/news/nvidias-increasing-reliance-customer-customer-103000708.html