Investors should worry that almost half of Nvidia’s revenue in the second quarter came from just 4 customers, according to a tech analyst

According to the company filing, just four customers brought in 46% of Nvidia’s total Q2 revenue — about $13.8 billion.

The companies are kept anonymous in the filing. There’s no disclosure law that requires Nvidia to reveal its clients’ names, Luria told BI.

But the customers are likely to be Microsoft, Meta, Amazon, and Google, Luria said. All four companies are known to be ramping up their GPU stockpiles as they aggressively pursue AI initiatives.

“The only way that they’re not the four is if one of their customers is a reseller,” Luria said, naming Dell and Supermicro as examples.

An Nvidia spokesperson declined to comment, and none of the four purported customers responded to requests for comment.

Luria said it’s “highly unusual for a company” at Nvidia’s scale to lean on a handful of clients for a large chunk of its revenue.

“None of the other mega caps even have one 10% customer,” the tech analyst told BI, referring to large companies with a market capitalization of more than $200 billion. As of Wednesday, Nvidia’s market cap was $2.61 trillion.

Luria maintained a Hold rating for Nvidia stock, citing concerns around the sustainability of demand.

Jacob Bourne, a tech analyst for Emarketer, told BI that the high concentration of revenue may be unusual within the context of the broader marketplace. But he said it’s normal for tech companies that provide a specialized product, like graphics processing units.

Emarketer is a subsidiary of Axel Springer, which also owns BI.

Nvidia said in a 10-Q filing that it has experienced periods where the company saw a significant amount of revenue from a limited number of customers and that “this trend may continue.”

In 2004 — when Nvidia was bringing in a fraction of the revenue it’s seeing today — the company’s 10-Q filing showed that just four unnamed customers brought in 51% of its total revenue in the third quarter. At the time, Nvidia was working with PC manufacturers like Dell and Sony to provide GPUs for computer and gaming systems.

Luria told BI that Nvidia has historically maintained the same big four customers — Microsoft, Meta, Amazon, and Google — in its data center segment. But they have typically been balanced by Nvidia’s gaming and auto segments, which have different customers.

“Customer concentration has increased for NVDIA recently because the data center business is now a much bigger proportion of overall revenue,” Luria said.

He said this customer concentration should be investors’ primary concern for the next year or two for three key reasons:

1. Large companies don’t rely on a single source

Big companies “don’t like being beholden to one vendor for any category,” Luria said.

“Just like Walmart doesn’t buy all of its potato chips from one vendor, Microsoft doesn’t like buying its computer chips from one company,” he said.

Microsoft has made that clear before, Luria added, citing how the company gradually moved away from Intel as its sole provider for processors.

2. The Nvidia demand could be temporary

Another reason investors should be concerned is that these large Nvidia customers have indicated that they are buying more GPUs without concern for their immediate return on investment, Luria said.

The companies “have communicated that they are ‘over-investing,’ which means they are buying without regard for a return on investment, usually not something that lasts very long,” Luria said.

Meta CEO Mark Zuckerberg told shareholders during an earnings call in April that any upside to his company’s AI pursuits will likely “take several years” — so the current feeding frenzy for Nvidia chips from the large clients could be temporary.

That doesn’t mean Nvidia will lack customers.

Bourne, the Emarketer analyst, told BI that Nvidia has a long list of clients, from countries to startups, that want to buy the company’s chips.

“Just because currently there’s these handful of companies that are really making up the lion’s share of Nvidia’s revenue, it doesn’t mean that that’s always going to be the case,” he said. “We might see an influx of new big customers and, of course, nation-states could be among those buying a significant number of these chips.”

3. Increasing competition

There’s also more competition coming for Nvidia.

Google and Meta announced new in-house chips for AI development earlier this year; Microsoft unveiled its custom AI chips at the end of 2023; and Amazon is developing its own chips to avoid paying for the expensive Nvidia GPUs, BI’s Eugene Kim previously reported.

“All of these companies are in various stages of deploying their own chips for AI,” Luria said. “Google and Amazon have been doing so the longest which means their technology is already competitive with Nvidia, and Microsoft and Meta are catching up.”