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

In Q2 of 2023, two significant clients accounted for nearly 40% of Nvidia’s record $46.7 billion revenue, as per a SEC filing. The chipmaker reported an impressive 56% year-over-year growth primarily fueled by the burgeoning AI data center sector.

However, further analysis revealed that this growth could be largely attributed to only a few key clients. Specifically, one client contributed 23% to Q2 revenue, while another represented 16%. The filing merely referred to these clients as “Customer A” and “Customer B.”

In the first half of the fiscal year, Customer A and Customer B were responsible for 20% and 15% of Nvidia’s total revenue, respectively. Four other clients contributed 14%, 11%, another 11%, and 10% to Q2 revenue.

Nvidia identified these as direct clients such as Original Equipment Manufacturers (OEMs), system integrators, or distributors who purchase chips directly from the company. Indirect clients, including cloud service providers and consumer internet companies, procure Nvidia chips from these direct clients.

It seems unlikely that a major cloud provider like Microsoft, Oracle, Amazon, or Google might be either Customer A or Customer B. Yet, these companies could indirectly contribute to the substantial 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 outlook. Gimme Credit analyst Dave Novosel told Fortune that while “concentration of revenue among 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 projected to invest heavily in data centers over the next couple of years.”