Big Tech’s massive artificial intelligence investments continued to fuel Nvidia’s (NVDA) rapidly growing data center business this quarter, but Wall Street is flagging the risk of a slowdown and what that means for the AI chipmaker.
Nvidia said in its second quarter filing to the Securities and Exchange Commission that large-scale cloud service providers made up roughly half of its data center revenue for the three months ending July 27, which tallied $41 billion, slightly below Wall Street’s expectations.
Nvidia’s data center segment is its largest revenue driver. It sells AI chips and servers to cloud providers, which use its AI GPUs and servers in data centers to remotely power artificial intelligence software, such as OpenAI’s ChatGPT.
Nvidia’s stock fell fractionally on Thursday as its data center revenue fell short of Wall Street’s projections despite rising 56% from the previous year.
That means Big Tech is making up more of Nvidia’s revenue than the previous quarter and the year-ago period. Nvidia said large cloud service providers represented “just under 50%” of its data center revenue in the first quarter. Last year, those customers’ share of that segment’s revenue was in the mid-40% range, according to company filings.
The biggest of Big Tech is driving that spending. According to the latest Bloomberg estimates, Microsoft (MSFT), Meta (META), Amazon (AMZN), and Alphabet (GOOGL, GOOG) collectively account for just over 41% of Nvidia’s revenue on an annualized basis.
Those companies have ramped up their investments in AI, raising their capital expenditure forecasts in their most recent quarterly earnings reports. The four companies are set to spend a cumulative $364 billion in their respective 2025 fiscal years.
There lies the risk for Nvidia.
Stifel analyst Ruben Roy told Yahoo Finance in an email that Nvidia’s “biggest risk” is a pause in capital expenditures from tech giants, “which is inevitable but not something that we are thinking will happen through 2026 based on various supply chain checks.”
William Blair analyst Sebastien Naji also told Yahoo Finance that any slowdown in AI spending would pose a “major risk” to Nvidia, but added that “most indicators point to continued strong growth in AI investments over the next couple of years.”
Nvidia reported earnings on Wednesday, Aug. 27.
DA Davidson Gil Luria said, “The cloud service providers will continue to invest as long as their customers are willing to rent the capacity.”
“If demand for compute eases, they may slow spending, but that hasn’t happened yet,” he added. Still, Luria acknowledged that Big Tech’s customers are generating very little to no returns on their investments in AI so far.
