Nvidia has a good problem, and it is about to become the center of attention.
The chipmaker's explosive growth has been powered by a small group of giant tech companies buying its processors in bulk. Amazon, Google, Microsoft, Meta, and SpaceX have been the engine. But those same customers are now feeling the squeeze of their own massive spending, and investors want to know if Nvidia can find buyers beyond its usual suspects.
The companies that run the biggest cloud networks, known as hyperscalers, have been Nvidia's bread and butter. There are only a handful of them, and they buy a lot of chips. That concentration is exactly what worries investors.
"The easiest go-to-market, of course, is the hyperscaler, because there are only five or six of them," Nvidia CEO Jensen Huang said on the company's May earnings call. "The rest of them, the rest of the industry, represents 250,000 companies around the world."
That second group is the one investors want to see step up. In May, Nvidia reorganized its reporting to separate revenue from hyperscalers and everyone else, a category it calls ACIE. In the company's first-quarter report released in May, the split was nearly even, with $37.9 billion coming from hyperscalers and close to $37.5 billion from ACIE.
The smaller customers are growing faster, too. ACIE revenue rose 31% compared to just 12% for the big players.
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The market has already shown its nerves. Nvidia's stock has dropped 7.5% over seven straight trading days, a slide that reflects doubts about whether the good times can last.
"This story underneath the surface is investors' concern about just how sustainable the run has been for Nvidia, and feeling like the hyperscalers just can't give much more," Gene Munster, managing partner at Deepwater Asset Management, said in an interview. "They want to start to see the other segment starting to kick in."
The numbers for the current quarter suggest that shift is happening, but slowly. Analysts project ACIE revenue of $43 billion for the second quarter, compared to $43.6 billion from hyperscalers. Total expected revenue is $92.2 billion, with data center sales forecast at $86.3 billion, a whopping 94% of the total.
The longer-term outlook is still strong. Full-year revenue is projected to grow 83% to $396 billion, with a slower 44% expansion expected the following year. Nvidia has forecast that its Blackwell and Vera Rubin systems will bring in $1 trillion in cumulative sales by 2027, and the recently shipped Vera Rubin line is seen as a key indicator of what comes next.
Nvidia is not waiting around for new customers to show up on their own. The company is partnering with six financial firms to create a financing program worth up to $500 billion, treating its GPUs as an investable asset class, similar to how real estate is bought and sold.
The idea is simple. Companies can borrow money to buy chips at lower rates because the hardware itself can generate returns. That could open the door for thousands of smaller businesses that cannot afford to pay cash upfront.
But there is a catch. Nvidia has only signed a memorandum of understanding, and few details have been disclosed. "There's been a lot of headlines and big numbers and not a lot of details on how this stuff is going to work yet," Stacy Rasgon, a Bernstein analyst, said on CNBC last week. "Color that they could give on that would be helpful to put some investors' minds at ease."
The bottom line: Nvidia's earnings report will be about more than just the numbers. It will be about whether the company can prove its growth does not depend on a handful of giants. Analysts at KeyBanc, which has a buy rating on the stock, anticipate solid quarterly numbers and an upbeat outlook, with increasing shipments of Rubin GPUs as the main driver.
For your portfolio, the question is whether Nvidia is a one-trick pony or a company building a broader base. The answer will come in the details of the report, and in whether the ACIE segment keeps closing the gap. If it does, the bull case gets easier. If it does not, the concerns about concentration will only get louder.
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