Nvidia’s GPU Dominance Faces Customer Concentration Risks

Nvidia (NASDAQ: NVDA) holds the top position as the world’s main supplier of graphics processing units (GPUs) for data centers. Currently, the demand for these chips, essential for artificial intelligence (AI) development, is growing much faster than the supply, a trend that is expected to continue across the near future.

This situation benefits Nvidia by enhancing its pricing power, which contributes to significant profits and an increased stock price for its investors. Over the past two years, the company has seen its market value soar by more than $3 trillion.

Major Companies Drive GPU Demand

Nvidia has recently introduced its Blackwell GPU architecture, which showcases a considerable performance improvement over the earlier Hopper architecture. For example, systems like the GB200 NVL72 can execute AI inference at speeds 30 times faster than the H100 system. This advancement enables developers to work on larger and more sophisticated large language models (LLMs).

However, a single GB200 GPU in the NVL72 system costs over $80,000, and building sophisticated AI models could necessitate over 100,000 of them. This high investment means only a select few companies, such as Microsoft, Amazon, and Oracle, have the means to invest in such extensive data center infrastructure.

These tech giants utilize Nvidia’s GPUs to create their own AI models and also provide rental computing power to developers. This arrangement proves profitable for both parties: developers gain access to extensive computing capabilities without needing to invest billions upfront, while Nvidia secures a stable revenue stream.

Although prices for GPUs are steep, each new generation, like the H100 priced at around $40,000, makes it somewhat more affordable. Despite the cost, the performance leap offered by the GB200 can significantly benefit users. However, it may take years before smaller companies can feasibly build their own infrastructure.

Concentration Risk for Nvidia

Nvidia achieved a record $35.1 billion in revenue during its fiscal 2025 third quarter, marking a 94% rise from the previous year. A substantial portion of this revenue, $30.8 billion, came from its data center segment, which sells AI GPUs.

In its Q3 10-Q filing, Nvidia noted that three unnamed customers accounted for 36% of its total revenue, highlighting some customer concentration:

Data source: Nvidia.

In the previous quarter, four customers contributed 46% of total revenue, indicating a slight reduction in revenue concentration in Q3. It’s worth noting that Nvidia only reports customers accounting for 10% or more of total revenue, which suggests other significant buyers exist that didn’t meet this threshold.

For example, a fourth customer contributed 12% of total revenue over the past nine months but fell below the reporting threshold for Q3. This indicates that the revenue concentration might have only slightly changed compared to Q2.

This concentration poses a concern. Customers B and C alone have each invested $10 billion in Nvidia over the last three quarters, which few companies globally can sustain. Should one of these reduce its spending, Nvidia could face a revenue drop that is challenging to replace, potentially disrupting its impressive growth trajectory.

Nvidia headquarters in Santa Clara, California. Image source: Nvidia.

Identifying Nvidia’s Key Customers

Microsoft consistently ranks as a top buyer of Nvidia’s GPUs and is expected to be among the top three customers for the new Blackwell GB200, which has just begun shipping.

Other potential major customers could include Amazon, Alphabet, Oracle, Meta Platforms, and OpenAI. Here’s how much those companies plan to spend on capital expenditures (capex), primarily for AI infrastructure:

• Microsoft earmarked $20 billion for capex in Q1 of fiscal 2025 (ended Sept. 30), following $55.7 billion in fiscal 2024.
• Amazon aims to spend $75 billion in 2024 to bolster its AI efforts.
• Alphabet’s capex spending in 2024 is projected to exceed $50 billion.
• Meta Platforms indicated an expenditure of up to $40 billion for AI infrastructure this year, with plans for even higher spending in 2025.
• Oracle expects to give an update on its capex in December, but Nvidia disclosed that Oracle is acquiring at least 131,000 Blackwell GPUs.

Morgan Stanley estimates that Microsoft, Amazon, Alphabet, and Meta will collectively spend around $300 billion on AI infrastructure in 2025. This projection suggests a solid sales pipeline for Nvidia in the near term. However, sustaining such high spending rates long-term remains uncertain.

These companies have also initiated designing their own chips to cut costs. While Nvidia has a significant lead, it may take several years for competitors to produce comparable products, presenting a potential risk for Nvidia’s future revenue since these competitors make up a large part of its income.

Although this situation is not an immediate threat for Nvidia, it’s essential for investors to monitor how these significant customers allocate their capex beyond 2025. This information will signal whether Nvidia can continue its remarkable growth pattern.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, and Oracle. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

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