Is Nvidia really as popular as you think? 1 number that worries me about the company’s long-term prospects.

When the word “semiconductor” is mentioned, it is almost impossible not to think Nvidia (NVDA -4.08%) — and for good reason. Over the past five years, the company has grown its revenue and free cash flow by nearly 900% and 800%, respectively. With this level of growth, it’s no wonder that industry analysts estimate that Nvidia has at least 80% market share in artificial intelligence (AI) chips.

By all accounts, Nvidia seems unstoppable. However, what goes up has to come down eventually, right?

While reviewing Nvidia’s Q2 earnings report, I came across a number that required a second look because I couldn’t believe what I was seeing. Specifically, I’m starting to realize that Nvidia’s customer focus trends could suggest that the company’s growth could come to a screeching halt — and I think many investors could be caught off guard.

Let’s take a look at Nvidia’s customer focus profile and explore why it’s important to understand this.

What is customer focus and why is it important?

Customer concentration measures a company’s revenue in its customer list. It helps answer questions that seek to find out how much sales are related to a particular customer or group of customers. For example, let’s say you have a business with 10 customers and they collectively generate $1 million in annual sales. However, one customer is liable for $500,000. As an investor, would you be comfortable buying a business that relies on a single customer for 50% of its annual revenue? Probably not.

Image source: Getty Images.

What does Nvidia’s customer focus look like?

At the end of August, Nvidia reported earnings for the second quarter of fiscal year 2025. According to the company’s 10th quarter statement, 46% of total revenue came from just four customers. That’s right — nearly half of Nvidia’s $30 billion in quarterly revenue came from just four customers. While quarterly business trends can fluctuate dramatically, a look at Nvidia’s historical customer concentration figures might suggest that the company’s growth is increasingly dependent on a particularly small cohort.

In Nvidia’s first quarter (ended April 28), the company noted that 24 percent of total revenue was attributable to two direct customers and that two indirect customers each accounted for at least 10 percent of revenue. One of these indirect customers actually purchased their products through one of Nvidia’s largest direct customers.

In its annual report for fiscal year 2024 (ended January 28), Nvidia revealed that 13% of its total revenue for the year came from one customer (noted as Customer A). The company also informed investors that “an indirect customer that primarily purchases our products through system integrators and distributors, including Customer A, is estimated to have accounted for approximately 19% of total revenues.”

To put all of this into perspective, Nvidia revealed that no single customer accounted for 10% or more of total revenue in fiscal years 2023 or 2022. Clearly, just in the last year or so, Nvidia has seen demand growing for its chips — but much of that growth seems to be coming consistently from a limited number of customers.

Why is this particularly worrying for Nvidia?

It’s one thing to be concerned about increasing customer concentration trends. However, looking WHO this growth may come from which brings an additional level of alarm when evaluating Nvidia’s growth prospects. While I can’t say for sure which companies are specifically in Nvidia’s top four, there are some good reasons to believe that much of the company’s growth can be traced back to the members of the “Magnificent Seven.”

In the past year, executives like Mark Zuckerberg and Elon Musk have cited it Meta and adze is aggressively buying Nvidia’s wildly popular H100 graphics processing unit (GPU). This is great news at face value. Being the AI ​​chip of choice for two of the world’s biggest tech companies is more than just a sign of approval. However, investors should not jump for joy.

During Tesla’s second-quarter earnings call earlier this summer, Musk dropped some heavy-handed signals that the company may try to compete with Nvidia in the future. Furthermore, Meta has increased its capital expenditure (capex) investments – and it’s not all good news for Nvidia. Meta developed its own chip, called the Meta Training and Inference Accelerator (MTIA), in an effort to move away from such a heavy reliance on Nvidia. Besides that, e-commerce and cloud computing mask Amazon has also doubled down on its own AI roadmap — part of which includes developing its own training and inference chips.

To be clear, I don’t see growing competition as an Achilles’ heel for Nvidia. Even if the big tech starts to reduce its orders from Nvidia, I suspect the company will have little trouble finding new business. The real concern is that I think Nvidia will lose pricing power as more players enter the chip space. So even though Nvidia will likely continue to generate solid growth, I think the days of triple-digit revenue and profit acceleration may be nearing an end.