The Biggest Risk to Nvidia Stock That Nobody Is Talking About

Nvidia (NASDAQ: NVDA) stock has been a major winner during this artificial intelligence (AI) boom -- it's soared 1,300% over the past five years as this story began to develop and gain momentum. This is because Nvidia offers the key product necessary for AI to take shape: the AI chip. There are other AI chips out there, but Nvidia's graphics processing units (GPUs) have proven to be the fastest -- and that's been a big selling point as tech giants aim to reach their AI goals.

All of this has driven eye-popping revenue gains for this AI leader. In the latest full year, for example, revenue climbed 65% to a record $215 billion.

Amid this very bright story, though, lies a risk to Nvidia stock that nobody is talking about. Let's consider it.

Image source: Getty Images.

Nvidia's early days

First, it's important to look at Nvidia's path so far. The company, being that it is more than 30 years old, wasn't always focused on AI. In its early days, Nvidia's main business involved serving GPUs to the video gaming market -- the company still does this, but it's no longer the major moneymaker. In the recent quarter, on $68 billion in total revenue, gaming revenue brought in less than $4 billion.

And this brings me to the subject of Nvidia's biggest risk. The company now makes 91% of its total revenue through its data center business, serving major AI clients as they order compute for their data centers. These are names such as Microsoft and Amazon. Now, the positive point here is that these customers have the financial strength to keep ordering Nvidia's chips and related products.

But the risk is that Nvidia has become heavily reliant on AI. If, for instance, AI spending drops significantly, Nvidia's revenue could plunge.

Is Nvidia a risky buy?

So, does this make Nvidia a risky buy right now? Not necessarily. It's important to note that enough of the AI story has unfolded to allow us to evaluate its strength. Companies are already using AI in many areas, so it isn't an experimental technology that risks falling flat.

Also, Nvidia is progressively expanding the use of its GPUs into a broad range of areas, from robotics and autonomous vehicles to telecom networks. So the company is growing its revenue sources rather than just relying on data center build-out.

Of course, investing in Nvidia comes with some degree of risk: Any slowdown in AI spending could weigh on the stock. But, considering the current usage and potential for AI, I wouldn't expect headwinds to be long-lasting. And that's why Nvidia's dependence on data center customers isn't a dealbreaker for me -- and I consider it a solid tech stock to buy and hold.

Adria Cimino has positions in Amazon. The Motley Fool has positions in and recommends Amazon, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.