Microsoft Could Deliver a Knockout Punch to Nvidia (Nasdaq: NVDA)

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Key Points:

• Nvidia's growth depends on five major customers, accounting for 50% of sales.
• Any pullback from these customers could severely impact Nvidia's revenue.
• Broadening the customer base is crucial for Nvidia's stability.
• With the competition heating up for Nvidia, investors are already starting to look ahead to 2025’s best investments. See what the hype is all about here. .

Doug and Lee discuss the remarkable rise of NVIDIA, noting its reliance on a small number of major customers like Microsoft (NASDAQ: MSFT) , Meta (NASDAQ: META) , Google (NASDAQ: GOOG) , Amazon (NASDAQ: AMZN) , and Tesla (NASDAQ: TSLA) , which together account for 50% of its sales. They express concern that if even one of these key players pulls back on spending, it could significantly impact Nvidia's (Nasdaq: NVDA) earnings. They also highlight the potential risks if new technologies, like the one from the company Etched, disrupt Nvidia's dominance. The conversation concludes with a plan to revisit the topic when new data on Nvidia's customer base emerges.

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Yeah.

Now, NVIDIA has been one of the most spectacular stock stories.

I have to tell you something in my lifetime.

In my lifetime as well.

And we have the same lifetime to share.

So, you know, you're now going back.

In terms of my period involved in the market, you're going back fifty years.

You know, they are moving up triple digits now year over previous year in revenue and net income.

One of the things that worries people though about companies like this in particular is when they're growing fast, they often are relying on a relatively small number of huge customers.

It's not a thousand customers each doubling their investment.

If the people really feel they have to be in in this sector, they've got billions of dollars on their balance sheets and they can write those kinds of checks.

So how does this look if you examine the NVIDIA customer base?

Well, I found it interesting when I found this data because I knew it was concentrated, but I didn't think it was this much.

I mean, fifty percent of sales go to six companies, six.

And I got and I have the data here.

So let me read it and weep this.

I'm sorry.

Check that.

It's five companies.

Microsoft has a big percent.

They have fifteen, nineteen percent.

Then Meta has ten, Google has seven, Amazon has six percent and Tesla has three percent.

And those are all big players in that realm.

So if you pulled out just one of those and especially a big player, that could really change the earnings at least for a quarter or two.

And it makes you wonder if that's fifty percent of all sales, then the other sales must be, you know, one percent, seventy five basis points.

I mean, nothing big.

I have always been worried about the AI trend with people spending lots of money.

Microsoft, I think, is the best example.

Yeah, they're betting more on AI than any company I know of.

Obviously, Nvidia is because they're providing the ammunition, but it's this question of do these companies get out over the tips of their own skis?

They're spending all this money on AI.

They find out a year from now they're not making money on it.

They're losing fifty cents on every dollar or something.

They start to pull back.

I don't mean pull the reins and stop the horse, but you don't have to pull back much to affect NVIDIA's revenue and net income growth.

And people are counting on these triple digit increases.

Microsoft and a couple of these other companies just say, we got to slow this down a little.

And suddenly Nvidia is overvalued by a huge amount.

Well, yeah.

And like I said, and let me just double check these numbers to make sure I had it right.

Yeah.

And Microsoft could be the one that gives them the kind of a temporary knockout punch with nineteen percent, almost twenty percent of sales.

You know, what if at some point they get kind of stacked up and they go, OK, we got to trim this back, you know, cut it back.

Well, that would be a ten percent drop in sales, which if that hit the tape on an earnings call, stock would be cut in half.

Well, I mean, I don't know if the people who run NVIDIA are good at seeing the future or if they're great salespeople because they continue to convince the investment market that.

The demand for their chips isn't leveling off, it's growing.

Now, Musk just set up a huge server farm near Memphis for his new AI operation.

Maybe there are going to be a large number of these companies, whether they're Musk's.

I mean, you've got tech companies all over the world.

The Chinese are apparently sneaking these.

Euro companies, sure, sure.

Through the side doors.

So they may get lucky and it may be that their base spreads so that you don't have five companies at fifty percent.

You know, they end up going down to twenty nine percent or something.

So I think Nvidia is.

The best future for Nvidia is a broadening of the customer base.

Yeah, and maybe in addition to that, perhaps chips that take care of some of the applications, but isn't the full-blown chip that everybody has to have.

But again, like we discussed before with Etched, that company we talked about recently, what if they embed the transformer into the processor and etch it into the silicon?

I mean, what if that works?

I mean, it may not, but what if it does?

Right.

So there's a second problem here, and that is that, you know, it's the disintermediation, whatever it is, it's disintermediating the previous technology.

They did it to some people.

The question is, will anybody do it to them?

Yeah, I think you're right.

And again, they have a huge lead and they, and they are smart.

I mean, again, you know, like we've said, they traded under ten bucks for years, but they found a way to get out of that, you know, that range when they had that great chip for gaming that just exploded because the gaming graphics were big and all that.

And that kind of gave them a little bit more runway to build this and then it was.

I mean, like you said, I don't know if I've ever seen.

I mean, I've been trying to think back what I've seen that's been like this and gosh, I really can't think of anybody that's been this parabolic, you know, move higher type of action trading action.

No, we've seen we saw in some dot-com stocks, but then they got out.

This is a case where it's gone up.

It's clearly got phenomenal fundamentals and it's holding its own.

So I don't know.

The next time there's data on the customer base for Nvidia, we'll come back to this.

Yeah.

Yeah.

And we'll see if those numbers are the same, less or more.

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