Nvidia's stock climbed roughly 2% to $212 on Tuesday, putting an end to a seven-session losing streak that marked its longest decline since 2022. The recent pullback, which saw shares fall 7.5% over the stretch, has drawn attention to the chipmaker's underperformance relative to the broader semiconductor sector. While Nvidia is up about 15% in 2026, the PHLX Semiconductor Index has surged 66% over the same period.
Customer concentration in the spotlight
Nvidia remains a key beneficiary of the artificial intelligence boom, supplying the graphics processing units that power data centers and some of the world's largest AI models. However, its heavy reliance on a handful of hyperscalers—such as Amazon, Google, and Microsoft—has become a growing concern for investors. Meta and SpaceX have also emerged as significant customers as they expand their AI infrastructure.
In its May earnings report, Nvidia revised its customer disclosure, separating hyperscalers from what it classifies as AI clouds, industrial, and enterprise customers (ACIE). The company does not identify individual companies within the hyperscaler category, but the breakdown will be closely watched in Wednesday's earnings report. In the first quarter, Nvidia generated $37.9 billion in hyperscaler revenue and nearly $37.5 billion from ACIE customers. ACIE revenue grew 31% quarter-over-quarter, compared with 12% growth for hyperscaler revenue.
These figures have intensified scrutiny over whether Nvidia can broaden its customer base and sustain growth if its largest customers eventually slow their AI spending. The concern is amplified by the financial strain on some of these key clients.
AI spending faces a financial test
Several of Nvidia's largest customers are facing rising capital requirements to fund their own AI expansion. Amazon and Alphabet both reported negative free cash flow in the second quarter, while Meta's cash generation fell by more than 90% year-over-year. SpaceX and Tesla, both led by Elon Musk, also reported negative free cash flow as they ramp up AI-related investments.
These developments have added to worries about the sustainability of the AI infrastructure spending cycle and Nvidia's dependence on a relatively small group of large buyers. Still, analysts expect Nvidia to deliver another strong quarter, underscoring continued demand for its AI chips despite growing questions about how long hyperscalers can maintain their current spending pace.
Analysts expect a beat
BMO Capital reiterated an Outperform rating and a $340 price target on Nvidia on Tuesday. The firm expects second-quarter revenue to come in $2 billion to $3 billion above the Street consensus of $92 billion. BMO also projects third-quarter revenue to exceed the $104 billion consensus estimate by $2 billion to $3 billion, driven by strength in Nvidia's data center business.
Nvidia generated $253.49 billion in revenue over the last 12 months, representing 71% year-over-year growth. The firm expects revenue growth to accelerate further as Nvidia's Vera Rubin architecture ramps up in the second half of the year. Raymond James also raised its price target on Nvidia to $352 from $330 while maintaining a Strong Buy rating.
CPU opportunity grows
Raymond James highlighted Nvidia's growing CPU business, which currently accounts for roughly 3% of total revenue. The firm expects that share to reach approximately 5% by calendar 2028. Nvidia has increased its visibility in CPUs, particularly as demand grows for hardware supporting agentic AI applications. Raymond James extended its financial model through fiscal 2029 and calendar 2028, suggesting Nvidia could become the world's largest CPU revenue company within several years. CPU revenue is expected to be the fastest-growing component of its model.
As Nvidia prepares to report earnings, the market's focus will be on whether the company can address customer concentration concerns while maintaining its growth trajectory. The options market is signaling a potential $280 billion swing in Nvidia's market value, reflecting the high stakes of the upcoming report. Meanwhile, chip stocks have been sliding as investors trim exposure ahead of the earnings release.
Despite the recent volatility, analysts remain optimistic about Nvidia's near-term prospects. The company's ability to beat expectations and provide strong guidance will be key to reversing the recent slide and reassuring investors about the durability of the AI trade. Some analysts believe Nvidia's AI financing strategy could fuel a stock rebound, adding another layer of optimism heading into the report.
This article is for informational purposes only and does not constitute financial advice.
