The AI-chip outfit rolled out its own DGX Cloud two years ago. Rather than just flogging silicon, it has been busy bankrolling rivals like CoreWeave and Lambda who are gunning for the big cloud trio.
While these efforts have not yet wrecked the status quo, it doesn’t take much imagination to picture a major upheaval if AI computing demand keeps rising and Nvidia continues playing chief arms dealer.
DGX Cloud is already clocking serious growth. UBS analysts reckoned at launch it could morph into a business topping $10 billion in yearly revenue. CoreWeave, which hit the Nasdaq in March, thinks it will haul in around $5 billion this year.
Still, those figures are pocket change next to the more than $107 billion Amazon’s cloud unit managed to squeeze out last year.
But Amazon is right to be twitchy. Its cloud wing delivered 29 per cent of the firm’s revenue last quarter, but accounted for more than 60 per cent of its operating income thanks to its fat margins.
Microsoft and Alphabet’s Google, also deep in the cloud game, have plenty at stake too. IT spending is already being squeezed by economic wobbles, and Google is fending off antitrust nosiness in the US while watching OpenAI prod at its golden goose.
All the big cloud players offer rented AI chips, mostly sourced from Nvidia, which controls around 80 per cent of the market. Yet they are enabling Nvidia to build its own cloud business.
DGX Cloud runs on a curious setup. The cloud giants shell out for the hardware, including Nvidia kit, then lease it back to Nvidia, who rents it to clients bundled with software and AI boffins.
This puts the usual suspects in a tight spot. They earn from the setup, but they’re also handing ammo to a would-be competitor. Google didn’t even show up for a DGX Cloud chip-rental marketplace revealed in May.
Omdia chief analyst Roy Illsley said it initially made sense for the cloud giants to get in bed with Nvidia. “They needed to respond to the market when the AI revolution took off, and what Nvidia did was give them a solution when they hadn’t got their own ducks in order,” he said.
DGX Cloud’s scale is murky and Nvidia doesn’t split out figures, but it did reveal $10.9 billion in multiyear cloud service agreements in its latest fiscal year, up from $3.5 billion the year before. That surge mostly came from DGX Cloud. Given usual cloud margins, it’s probably already turning a tidy profit.
Nvidia insists it’s not trying to muscle out the incumbents. It claims the aim is simply to connect customers with AI hardware and its in-house wizardry where others can’t. That might hold water for now, but thinking Jensen doesn’t have bigger plans would be a stretch.
DGX Cloud gives Nvidia the option to build a serious cloud outfit later while already steering AI’s direction. That logic likely fuels its investments in CoreWeave and Lambda.
Relations with the cloud crowd may not stay chummy. As Nvidia edges into their turf, they’re building their own AI chips to kick the dependency. Those efforts could eventually dent Nvidia’s revenue unless it finds new pastures.
