Nvidia’s second-quarter earnings narrowly beat analyst expectations, but the company also revealed the growing influence of two of its biggest customers who, together, accounted for 39% of its revenue.
Nvidia’s stock was the hottest of 2024 and is up about 30% year-to-date, but its customer concentration raises questions about vulnerabilities. If these two mystery customers change their buying habits, for instance, it could cost the chipmaker greatly.
Nvidia’s chief financial officer Colette Kress also said in a statement that half of the revenue brought in by its biggest money-making segment, its data-center business, relied on cloud providers.
Still, at least one analyst downplayed the influence of Nvidia’s mystery customers. Although its buyers’ spending could change, the demand for AI progress remains high and Nvidia’s chips are the best in the industry, said Dave Novosel, senior investment analyst for telecommunications, media, and technology at Gimme Credit.
“The concentration of revenue among such a small group of customers does present a significant risk,” Novosel told Fortune. “But fortunately for Nvidia, these customers have bountiful cash on hand, generate massive amounts of free cash flow, and are expected to spend lavishly on data centers over the next couple of years.”
In its SEC filing, Nvidia noted both its biggest anonymous buyers are “direct customers.” These customers buy directly from Nvidia, but may not be the ultimate user of the chips. Some examples listed in the filing include, but aren’t limited to, add-in board manufacturers, distributors, original design manufacturers (ODMs), original equipment manufacturers (OEMs), and system integrators.
An Nvidia spokesperson declined to comment to Fortune on the identity of the customers.
“We have experienced periods where we receive a significant amount of our revenue from a limited number of customers, and this trend may continue,” Nvidia disclosed in the filing.
Nvidia on Wednesday reported revenue of $46.74 billion, 56% higher than during the same period last year. It reported net income of $26.4 billion, an increase of more than 59% year-over-year.
