This is The Takeaway from today’s Morning Brief, which you can sign up to receive in your inbox every morning along with:
It pays to have loyal customers, and in Nvidia’s case, you don’t need that many of them.
Even as rivals and startups are gunning for more action on the chips powering AI services, Nvidia is aiming to capture trillions of dollars in the coming years, cementing itself as the foundation of the AI transition.
Sales to Nvidia’s two largest direct customers last quarter represented nearly 40% of total revenue in its data center business, the heart of its operation. The next four biggest customers accounted for 46% of the unit’s revenue, highlighting the symbiotic relationship between Nvidia and the major tech platforms that sit downstream of its chip supply and feed its coffers. But it also reflects the delicate, untested nature of the AI ecosystem.
It’s not hard to understand why relying on a handful of clients puts your revenue stability at risk. Should their interests change or spending waver, there goes a big chunk of your payday. Meta (META), Google (GOOG), and Amazon (AMZN), for instance, are working to lessen their reliance on Nvidia with their own in-house chips.
That logic also runs through broader conversations about national security interests and the global AI arms race. Heavily concentrated industries can pose a vulnerability to markets, societies, and governments. COVID supply chain disruptions illustrated that point in painful ways. And rising tensions in global trade are a constant reminder.
But Nvidia isn’t just some humble startup with a big Silicon Valley client. On the contrary, the superiority of its products means those customers need Nvidia just as Nvidia needs them. It’s no accident the chipmaker presides over Wall Street — and investor portfolios — as the most valuable name.
What looks like a client bottleneck is actually an industry chokehold.
Analysts are newly energized by Nvidia’s long-term vision despite the data center revenue miss, even if the market isn’t yet. Based on how much money the biggest AI companies are currently throwing around, CEO Jensen Huang said he anticipates firms shelling out $3 trillion to $4 trillion over the next five years, with Nvidia winning most of that business. At least 10 shops raised their price targets after earnings, according to Bloomberg.
Nvidia’s importance as an American tech linchpin is also evident in its ambitions for China. Huang has publicly made the case that preventing his company from shipping there would leave the US shut out of a crucial market. On Wednesday he told Yahoo Finance, “Just as the American dollar is the world standard that economies are built on, we want the American tech stack for the world’s technology and industries to be built on, and that includes China.”
