NVIDIA revenue growth is heavily concentrated among two undisclosed major customers.

Nvidia Corp. reported second quarter earnings that exceeded analysts' forecasts, but attention focused on two undisclosed customers—referred to as "Customer A" and "Customer B" in the company's SEC filing—who accounted for a substantial 39% of the company's revenue. Customer A represented 23% of Q2 revenue, up from 14% in the prior year, while Customer B contributed 16%, a rise from 11% the previous year. Despite Nvidia's stock emerging as the top performer in 2024 with a 30% surge year-to-date, this concentration of revenue among just two clients presents potential risks to the company.

The dependency extends beyond these two customers. Nvidia's CFO, Colette Kress, disclosed that half of the revenue from the company's largest segment, the data-center business, is dependent on cloud providers. Meanwhile, cloud providers such as Google and Amazon are considering alternatives to Nvidia chips, despite the company holding over 90% of the AI GPU market.

Nvidia reported Q2 revenue of $46.74 billion, a 56% increase from the same period last year, and net income of $26.4 billion, a 59% year-over-year increase. The company attributed these figures to the continuous construction of AI data centers and demand for its latest Blackwell chip. However, analysts have noted both the risks and potential mitigating factors: Dave Novosel, a senior investment analyst at Gimme Credit, downplayed the concentration risk, emphasizing that the demand for AI progress remains robust and that Nvidia's chips are industry leaders. He also pointed out that these customers have ample cash reserves and are projected to heavily invest in data centers in the upcoming years.

Any shift in the purchasing behavior of the two major customers could have a significant impact on Nvidia, and the potential shift of cloud providers to alternative suppliers warrants close monitoring. The company's continued dominance in the AI GPU market and the robust demand for AI progress may offset these risks, but significant changes could impact Nvidia's revenue and market position.