Cloud computing has long generated enormous profits for companies like Google, Microsoft, and Amazon. However, as AI-focused cloud providers gain traction, that dominance is now facing an emerging challenge, and Nvidia assumes a new, potent role.
Nvidia’s own cloud computing service, DGX Cloud, was introduced two years ago. Since then, the massive AI chip company has directly invested in the expansion of cloud startups like CoreWeave and Lambda. Even though these competitors haven’t yet overtaken the market leaders, their momentum points to a changing environment as the demand for AI grows and Nvidia continues to be the industry’s preferred chip supplier.
NVIDIA starts to invest in cloud computing
DGX Cloud is growing rapidly. Analysts at UBS estimated that the service could generate over $10 billion in revenue annually when it first launched. After going public in March, CoreWeave anticipates making $5 billion this year. These numbers represent a significant shift for narrowly focused AI cloud providers, but they still fall short of Amazon Web Services, which made over $107 billion last year.
The stakes are high for Amazon. Because of its high margins, the company’s cloud division generated 29% of its most recent quarterly revenue but more than 60% of operating income. If Nvidia and its AI-cloud partners change the market, Google and Microsoft could also be at risk. Players like OpenAI are posing a threat to Google’s core search business and are under antitrust scrutiny.
Ironically, despite Nvidia’s potential as a rival, the big cloud providers still support it. The majority of the AI chips they rent out are produced by Nvidia, which holds about 80% of the market. With software and AI know-how bundled in, Nvidia then leases those same chips back through DGX Cloud and makes them available to corporate clients.
There are awkward tensions in this arrangement. By renting hardware to Nvidia, cloud providers can generate income, but they run the risk of encouraging a rival. Some are wary; Google, for example, did not participate in the May announcement of Nvidia’s DGX Cloud marketplace.
Nvidia still needs to be cautious. The cloud giants are encroaching on Nvidia’s territory as it grows into the cloud. Google, Microsoft, and Amazon are all creating unique AI chips that might eventually displace Nvidia’s and reduce its profits. Nvidia views cloud computing as its next frontier, as AI has been the driving force behind its recent success. However, it runs the risk of making some of its largest clients into cautious rivals as it goes.
Featured Image Credit: Myburgh Roux; Pexels: Thank You!
