Pay Close Attention to This Crucial Revenue Source for Artificial Intelligence (AI) Giant Nvidia

Nvidia (NASDAQ: NVDA) has quickly risen from an obscure semiconductor company to become a household name. The company's success has mainly been driven by its skyrocketing data center sales, which have boomed as technology companies commit hundreds of billions of dollars to build the most advanced artificial intelligence (AI).

The latest research from The Motley Fool shows that Nvidia easily leads the pack when it comes to data center sales, with $35.5 billion in the fourth quarter of 2024. For reference, Nvidia's closest data center competitor, International Business Machines, had just $4.2 billion in data center sales during the same period.

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But how safe is Nvidia's most important revenue source against the backdrop of President Donald Trump's tariffs and a potential economic slowdown? Here's what investors should pay close attention to.

Image source: Getty Images.

Why data center revenue is crucial for Nvidia's growth

To understand just how important Nvidia's data center processor sales are to the company, consider these stats:

• Nvidia's data center revenue rose 884% between Q4 2022 and Q4 2024
• Data center sales account for 88% of the company's total revenue
• Nvidia's data center sales soared 142% in 2024 alone

Nvidia doesn't provide specific gross margin figures by revenue segment, but with the vast majority of the company's sales coming from data centers, it's safe to assume that of the company's 75% gross margin, most is coming from its data center segment. This has made Nvidia very profitable, with the company raking in $2.99 in adjusted (meaning not meeting generally accepted accounting principles) earnings per share last year, up 130% from the previous year.

Large tech companies, including Amazon, Alphabet, Microsoft, Meta Platforms, and others have all tapped Nvidia's processors for their data centers, but demand for its processors is global as well.

"Countries across the globe are building their AI ecosystem as demand for compute infrastructure is surging," Nvidia Chief Financial Officer Colette Kress said on the company's recent earnings call.

Keep an eye on tariffs and data center funding cuts

Semiconductors are exempt from Trump's tariffs for now, but that might not always be the case. The White House has said it's looking into semiconductor tariffs, and Trump has said they could be coming soon.

That's why Nvidia recently announced that it's moving manufacturing of its Blackwell processor, its most powerful chip, to the U.S. It will take some time for this transition to occur, with Nvidia saying it will happen over the next 12 to 15 months.

Nvidia isn't completely out of the woods with tariffs, considering that the Trump administration could still add new tariffs any day and Nvidia's switch to U.S.-based manufacturing for Blackwell won't happen overnight.

What's more, investors need to know that some tech companies have recently cut some of their data center spending. Companies and economists are increasingly concerned that tariffs could cause a recession, and some tech giants have responded by reducing data center spending.

For example, Microsoft paused a $1 billion data center project in Ohio recently, and Amazon temporarily paused some data center leases in Europe. While some other cuts could materialize, it's important to note that all of these tech giants are eager to stay ahead of the competition in the AI race, which means a drastic pullback in AI data center investments isn't likely.

All of this indicates that Nvidia's data center growth is likely to continue its trajectory for now, but investors should certainly keep an eye on what's happening with tariffs and the economy. If more tech giants announce spending cuts or the U.S. slips into a serious recession, then Nvidia's data center golden goose may not lay as many eggs as it has in the past.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, International Business Machines, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.