Microchip designer Nvidia saw its second-quarter revenue more than double, thanks to a handful of big customers that accounted for nearly half of the company’s sales.
The four customers, whose identities were kept anonymous for competitive reasons, directly purchased goods and services representing 46% of NVIDIA’s $30 billion in sales, or roughly $13.8 billion, according to the company’s 10-Q regulatory filing, which the company released alongside its much-anticipated quarterly investor update.
Each accounted for more than a tenth of overall sales, and the acquisitions were all related to the company’s burgeoning business of selling chips to the data centers that entrepreneurs like Elon Musk are rushing to build amid an artificial intelligence gold rush.
To put this in perspective, these four customers contributed more to revenue than Nvidia reported in the entirety of the same period last year.
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The name of the mysterious AI whale is unknown, but it could include Amazon, Meta, Microsoft, Alphabet, OpenAI, Tesla, and others.
Nvidia’s most popular products are AI chips like the H200. These are needed to train large language models like OpenAI’s GPT-4, and are also used to power inference, the process that ChatGPT and Sora use to generate answers to text-based prompts.
That reliance on a handful of key clients underscores growing market concerns about how sustainable the sudden surge in growth from one corner of the business is, with some investors including Elliott Management and Citadel expressing skepticism about how long that growth can be maintained.
History certainly gives reason for concern: The semiconductor industry is known for boom and bust cycles.
Nvidia shares are expected to open lower on Thursday, lower than the broader stock market.
One customer brings in more revenue than Nvidia’s second-largest business
In fact, NVIDIA’s business ties to these large companies are so significant that the company warns about them in a section of its quarterly report on cluster risks called “revenue concentration.”
“We have derived significant revenue from a limited number of customers at one time or another,” the company said in its 10-Q regulatory filing, “and this trend may continue in the future.”
It’s a surprisingly profitable trend: Nvidia earned $5.60 in net profit for every $10 of revenue it made in the first half of the year, a profit margin most companies can only dream of.
That’s why after-tax profits for the last six months rose nearly fourfold compared to the same period a year ago, to $31.5 billion. Whether sales, and therefore profits, can keep growing at this blistering pace is crucial to the company’s investment story.
For example, “Customer B,” listed in the filing, made up 11% of Nvidia’s $30 billion in direct purchases, meaning that this one company contributed more to revenue than the entire gaming division ($2.9 billion), the group’s second-largest division.
However, Customer B was below the 10% threshold for the entire first half of the year, indicating that they suddenly increased their spending significantly last quarter. The exact same can be said for “Customer C” – the numbers provided by Nvidia are identical.
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Chief Executive Officer Jensen Huang was asked in an interview on Bloomberg TV on Wednesday where demand was coming from outside a handful of hyperscalers such as Microsoft, Google and Amazon.
“We’re relatively diversified now,” he asserted, citing a range of different customer groups.
But his company’s numbers seem to argue against that conclusion: This time last year, for example, no direct customer accounted for more than 10% of total revenue in either the first or second quarter.
Nvidia did not immediately respond to Fortune’s request for comment.
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