Nvidia Tries to Shift from Hardware Sales to Recurring Revenue Streams

Nvidia's dependence on a handful of customers has been a concern for investors. CFO Colette Kress acknowledged this issue, stating that 'we get paid twice' through its new neocloud strategy.

The company's AI revenue comes from just three direct customers, who generated 44% ($78.2 billion) of Nvidia's $177.8 billion revenue in the first half of fiscal 2027. This concentration has increased from two customers driving 35% a year earlier.

Nvidia is pushing to broaden its customer base by getting paid not just for hardware sales, but also through a share of rental revenue when third parties use its compute services. The neocloud strategy involves selling data center infrastructure to AI cloud providers and backing them with cloud-service agreements to help finance capacity.

This model creates a potential feedback loop: Nvidia sells GPUs to expand the customer base, which drives utilization, and then gets another revenue stream from that utilization. CFO Kress emphasized the importance of this new revenue stream, stating 'in this model, we get paid twice, once on the hardware sale and again through the share of rental revenue.'