Nvidia’s Best Customers Have a Reason to Stop Buying So Many Nvidia Chips

Nvidia reports earnings on August 26. Most investors will be watching Blackwell demand, Rubin margins, and whether (NVDA) can beat expectations again. I am watching something else. Nvidia’s biggest customers are spending extraordinary amounts on its chips while also spending billions trying to reduce their need for them. That is not because Nvidia’s products are failing. It is because they are working too well.

Nvidia’s gross margins remain around 75%. That is fantastic if you own (NVDA). If you are (MSFT), (AMZN), (GOOG), or (META), paying those margins is also an incentive to build more of the technology yourself. Google has its TPUs, Amazon has Trainium, (MSFT) is developing Maia, and (META) is pushing further into custom silicon. None of them need to replace (NVDA). They only need to reduce the percentage of their next AI dollar that goes to Nvidia.

This matters because investors often treat rising AI capital spending as automatically bullish for (NVDA). It has been for several years, but I am not convinced every additional dollar of AI spending will continue flowing through (NVDA) at the same rate. AI spending can keep rising while Nvidia captures a smaller share of it.

Nvidia Created the Incentive

One of the strange things about exceptional businesses is that their economics eventually attract competition. (NVDA) has spent years building an extraordinary position in AI infrastructure. Its lead…