Tech investors warn of over-reliance on big customers for revenue. – Today

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Seligman Investments’ Paul Wick has been reducing his stake in Nvidia Corp. in recent weeks after raising questions about the stock market darling’s earnings growth prospects.

“We’ve had a bit of a dampening of enthusiasm over the last week or two,” Vick said Friday via video call at a UBS Group AG event in Singapore, but he did not elaborate on how much participation had fallen.

Wick, who has invested in the technology sector for about three decades, compared Nvidia to the rise of Cisco Systems Inc. during the dot-com bubble. He said the high valuation and lack of recurring revenue “make their business inherently riskier.”

About 60% to 70% of Nvidia’s revenue comes from its 10 largest customers, making it “a much riskier company than, say, Microsoft or Google, which have very low customer concentration and hundreds of thousands of customers,” said Wicker, who oversees the $13.5 billion Columbia Seligman Information and Technology Fund.

The chipmaker’s shares have tripled over the past year, recently becoming the world’s most valuable company, on optimism about artificial BroadCast Unitedligence. Yet many investors are betting the rally will continue, and Wick and Rob Arnott of Research Affiliates LLC are among the few naysayers.

Nvidia trades at 43 times next year’s estimated earnings, a valuation higher than all but one of its peers in the Philadelphia Semiconductor Index.

Generative AI companies that spend billions of dollars on Nvidia systems are seeing a poor return on investment, Wicker said, adding that “many of Nvidia’s largest customers are actively designing their own processors,” including Alphabet Inc.’s Google, Microsoft Corp. and Meta Platforms Inc.

The stock remains one of the fund’s top holdings, and it has outperformed 97% of its peers over the past three years, according to data compiled by Bloomberg.

Nvidia needs to “demonstrate that growth can continue at a healthy pace,” Wick said.

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