Nvidia (NVDA +0.29%) has never officially revealed the identity of its biggest customers -- but comments from these customers themselves have helped us draw some conclusions. The world's most prominent tech players, including Microsoft (MSFT +3.64%) and Amazon (AMZN +0.61%), are among them, rushing to Nvidia for its high-performance artificial intelligence (AI) chips and systems.
Microsoft and Amazon, through their cloud businesses, offer these platforms to their customers. And today, both tech giants, to better serve these customers, have committed to ramping up their infrastructure -- a move that requires growing investment in compute. This represents an enormous revenue opportunity for Nvidia, and Nvidia has even said that overall AI infrastructure spending may reach as much as $4 trillion by the end of the decade.
All of this is great, but recently, Microsoft and Amazon made a startling move that potentially could get in the way of an additional billion-dollar revenue opportunity for Nvidia.
Image source: Getty Images.
An AI leader
First, though, a bit of background on Nvidia's AI path so far. The company has become the leader of the AI chip market, designing the world's most powerful graphics processing units (GPUs). These are the chips driving the most crucial of AI tasks, for example, the training of large language models. Nvidia did this by noticing the market opportunity early on, taking the risk of making AI its focus at that point, and preparing itself to update its chips on an annual basis.
All of this has resulted in double-digit revenue growth in recent quarters and record earnings. Stock performance has kept up with this as the shares have soared more than 1,000% over three years.
NASDAQ: NVDA
Key Data Points
But one major revenue opportunity has eluded Nvidia in recent times, and that's the Chinese market. U.S. export controls have blocked Nvidia's high-powered chips from that market, and China itself has added to the challenge -- China has banned foreign-made chips, according to several press reports.
The AI market opportunity in China
Nvidia chief Jensen Huang says the market opportunity in China may total "a couple of 100 billion dollars by the end of the decade," CNBC reported.
In spite of these headwinds, Huang aims to find a way to return to that high-growth market. And this brings me to the move made by Nvidia customers -- Microsoft and Amazon -- that could get in the way.
Both companies have recently supported a new effort that might further limit Nvidia's business in China, according to The Wall Street Journal. Microsoft and Amazon both are backing the Gain AI Act, a piece of legislation that orders chip designers to first fulfill U.S. demand before shipping chips to China, the newspaper reported. The act was introduced in the House of Representatives late last month, and if it passes there, it then must move on to the Senate.
Now, let's answer the following question: Could this act, if it eventually becomes a law, get in the way of Nvidia's billion-dollar revenue opportunity in China? As mentioned, Nvidia already is facing headwinds that have halted its exports to that country. Still, even without sales in China, Nvidia has managed to significantly grow its revenue -- for example, in the latest quarter, revenue rose in the double-digits to more than $46 billion. So, the ability to export to China would be fantastic, but meanwhile, without sales there, Nvidia continues to grow at an impressive pace.
Positive news for Nvidia
The Gain AI Act, if it passes, surely would represent a headwind for Nvidia, but it's also important to keep in mind that it implies something important: Demand for Nvidia chips in the U.S. remains strong, and the idea that tech giants are backing this act shows they plan to continue investing heavily in these chips. That's very positive news for Nvidia.
Of course, the Gain AI Act, as well as the current restrictions blocking Nvidia from China, may limit the company's growth potential, but it's important to remember two points. First, Nvidia's Huang is known for being proactive and finding solutions to problems -- for example, a couple of years ago, Nvidia designed a chip specifically to suit export controls -- so there's reason to be confident that Huang might win this time around too.
And second, as mentioned, without China, Nvidia has what it takes to significantly increase revenue as the AI boom continues. So, even if Microsoft and Amazon continue to support the Gain AI Act and it becomes a law, Nvidia's revenue growth opportunities are far from over.
