Nvidia (NASDAQ: NVDA) stock posted yet another beat on earnings in its Q2 report on August 28, revealing a revenue that has almost doubled from the same period in the previous year, with four mystery customers making up roughly 45% of its total revenue–each contributing more than $3 billion.
According to the 10-Q report, Nvidia profited roughly $13.8 billion of the previous quarter’s $30 billion from these four customers.
Despite the names being unknown due to competitive reasons, traders assume that they are probably some of the other industry’s most prominent companies, such as Microsoft (NASDAQ: MSFT), Amazon (NASDAQ: AMZN), Tesla (NASDAQ: TSLA), and Alphabet (NASDAQ: GOOGL).
Some notable additions for Nvidia’s customers in the Q2
Although their names remain a mystery, their contribution to profit remains evident in the 10-Q regulatory filing, revealing that “Customer A” made up 14% of total revenue for two consecutive quarters in 2024, which, to put it in perspective, is more than Nvidia’s whole gaming business revenue of $2.9 billion in the second quarter.
Another interesting fact is that customers B and C contributed less than 10% in the first quarter of 2024; however, their spending spiked above 10% in the second quarter, meaning that they heavily invested in their microchip infrastructure over the previous period.
This trend presents a notable shift from the previous year, where none of the customers made up more than 10% of revenue, which could be good and bad news for the semiconductor giant at the same time.
The good news is that the artificial intelligence (AI) rally has seen companies drastically ramp up their spending on microchips; however, the bad news is that this means that Nvidia’s profit diversification is far from ideal.
Why are billions invested from a few customers potentially bad for Nvidia?
Because Nvidia’s profit concentration is high, and its sector, semiconductors, is known for periods of lower performance, this should concern the company.
Despite being highly profitable now, the upcoming periods could reveal a significant weakness in Nvidia’s revenue stream, as Josh Koren, CEO of Musketeer Capital Partners, highlighted in his recent interview.
Koren said, “I wouldn’t be surprised to see it (profit decline) happen maybe within the next two or three quarters, and when that does happen, it could push Nvidia’s share price down 20% or more.”
A potential turndown from its largest customers regarding microchip expenditures or even their production of custom chips could spell bad news for Nvidia.
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Source: https://finbold.com/these-stocks-might-be-nvidias-billion-dollar-customers/