Scorching-hot tech powerhouse Nvidia (NASDAQ:NVDA) saw its shares incur a rare dip on Thursday. This volatility comes following a CNBC report that one customer provides the lion’s share of top-line contributions. While very few experts are skeptical about NVDA stock, the underlying enterprise has a dependency challenge.
UBS analysts speculated in a research note that Nvidia’s mystery customer may be Microsoft (NASDAQ:MSFT). The research arm of the Wall Street banking giant stated that it analyzed the semiconductor firm’s filings. The analysts believe that Microsoft contributed 19% of Nvidia’s top line in fiscal 2024.
Adding to the intrigue, Nvidia acknowledged the dependency indirectly, vaguely remarking that “two indirect customers each represented 10% or more of total revenue for the first quarter of fiscal year 2025.”
CNBC attempted to reach out to Microsoft, but the company did not immediately respond to its email.
What’s not under question is the enormous popularity of Nvidia’s graphics processing units (GPUs) that power advanced protocols. Of course, the main innovation that has captured the limelight is artificial intelligence (AI). Beyond Microsoft, CNBC states that Google parent Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), Meta Platforms (NASDAQ:META), Amazon (NASDAQ:AMZN) and OpenAI bought billions of dollars of Nvidia’s GPUs.
Competitive Concerns Rise for NVDA Stock
At the moment, nothing appears capable of slowing Nvidia stock down. Recently, the underlying company delivered a blockbuster first-quarter earnings report. Further, data from Stock Analysis shows that in the past five years, revenue growth averaged nearly 47%. During the same period, earnings per share expanded by almost 135%.
Even with some years posting negative growth, the overall financial trajectory has been incredibly robust. However, it also begs the question of whether NVDA stock can maintain such dominance. Fundamentally, the problem with such a high dependency on a few customers is that they can eventually choose competing alternatives.
One news item to keep in mind is Microsoft’s development of new computers integrate energy-efficient chips made by Qualcomm (NASDAQ:QCOM). These devices can handle AI models, which is significant because of the innovation’s intense energy consumption.
In fact, The Washington Post earlier this year headlined that America is “running out of power.” One of its main points is that the nation’s 2,700 data centers have sapped more than 4% of U.S. total electricity output in 2022.
In other words, the low-hanging fruit may have already been plucked. The next big innovation can’t just center on technical advancements but must incorporate energy efficiency.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
