Nvidia Says It Could Build a Cloud Business Rivaling AWS. Is That Possible?
The Takeaway
• Nvidia is already on pace to generate $2 billion annually from selling software
• It doesn’t have a single leader for the software business but is expanding the group
• Nvidia’s software and cloud business faces challenges including making businesses aware of products
In the past two years, Nvidia has quietly gone into competition with its biggest customers: cloud providers such as Amazon Web Services and Microsoft. Nvidia now rents out servers powered by its artificial intelligence chips to businesses directly, and also provides software to help them develop AI applications.
Nvidia says it is already among the biggest sellers of AI cloud services. And in a little-noticed disclosure, it told investors that in the long run it could generate $150 billion in revenue from software and cloud services—more than either Nvidia or AWS currently generates annually.
“If you actually step back and you look at how much is spent on data center infrastructure versus enterprise software, the lion’s share of ongoing expenditure in enterprise is on the software side,” said Justin Boitano, Nvidia’s vice president of enterprise AI. “I think we realize that we have a really important role to play there.”
The Nvidia cloud software business faces numerous challenges and pales in comparison with Nvidia’s chip division, which was recently on pace to generate $120 billion annually. But last month, Nvidia Chief Financial Officer Colette Kress said the firm’s software, service and support business would surpass $2 billion in annualized revenue by the end of 2024. (Company spokespeople declined to say whether those figures included its cloud server rental business.)
That means Nvidia already has one of the top AI cloud businesses. Around June, Microsoft hit $1 billion in annualized revenue from selling OpenAI technology to cloud customers. Google Cloud has set a goal to generate $1 billion in revenue from selling AI services in North America this year. And CoreWeave, which runs a cloud service that primarily rents out Nvidia-powered chips, has projected it would generate $2 billion in revenue this year.
Nvidia’s move into cloud software has privately irked the cloud providers. Not only is Nvidia competing with them, but its offerings could change the way businesses access the specialized hardware and software for developing AI apps, such as chatbots and agents that automate research, analysis and other tasks.
Nvidia CEO Jensen Huang hasn’t been afraid to publicly imply he could muscle into cloud providers’ territory by ramping up his company’s own cloud and AI software businesses, known as DGX Cloud and Nvidia AI Enterprise, respectively. He wants to make Nvidia a one-stop shop for businesses looking to develop and run AI applications, from customer service chatbots to tools that might help researchers discover new drugs.
“This is going to likely be a very significant business over time,” Huang said in a quarterly earnings conference call in February, adding that he envisioned “every enterprise in the world” would buy Nvidia’s software, not just its vaunted chips.
The move could start to pay off as Nvidia’s chip sales growth slows and investors become more concerned about chip competition.
Huang’s ambition in the cloud is also understandable: Amazon and other big Nvidia chip customers such as Microsoft and Google are simultaneously developing quasi competitors to Nvidia’s dominant AI chips. So while those cloud providers have been buying tens of billions of dollars of Nvidia chips to rent them out to companies developing AI, they’re also trying to lure those companies to use the alternative chips, which are less expensive than Nvidia’s.
In some cases, Nvidia’s would-be rivals are developing their AI chips with the help of chip designer Broadcom, whose shares have soared in recent days after CEO Hock Tan said the market for Nvidia alternatives was going to boom.
But there’s a twist: Nvidia operates DGX Cloud in the data centers of the rival cloud providers—and its expansion promises to bring those rivals extra business, at least for now. Nvidia has said it will increase its own purchases of cloud services from major providers such as AWS to more than $1 billion per year, in part to support DGX Cloud. Nvidia has considered setting up its own data centers and cutting out the cloud providers. It isn’t clear if Huang intends to move in that direction.
A Placeholder Business
Nvidia hasn’t yet created a big organization to expand its AI cloud and software business. For instance, there isn’t one single leader who oversees Nvidia AI Enterprise, according to a person with direct knowledge of the situation. Last year, Nvidia hired Alexis Black Bjorlin from Meta Platforms to run DGX Cloud, but a search on LinkedIn shows only around 200 employees are working on the cloud or enterprise software businesses. Nvidia employs around 30,000 people.
According to job listings, Nvidia is hiring 39 “solutions architects,” salespeople who will focus on specific industries, including the financial services, automotive, healthcare and retail sectors—a common position at cloud providers such as AWS. An Nvidia spokesperson declined to comment on the employee tally but said the company employs “more software engineers than hardware engineers.”
Nvidia has said early customers of its cloud software include enterprise software firms ServiceNow, SAP and Amdocs, all of which declined to comment on their deal terms and how much they are paying for the software. Nvidia has also said consulting firms Accenture and Deloitte are helping it sell the software, adding that Accenture launched a “new business group” to do so.
Started three years ago, Nvidia AI Enterprise provides customers with a hodgepodge of software for managing clusters of AI chips known as graphics processing units, preparing data for developing AI models and training the AI models themselves. Customers can also use models Nvidia has developed for automating tasks such as coding, generating text or imagery. OpenAI and others make similar models. Nvidia guarantees the security and reliability of its software.
Cloud providers also sell such products, but Nvidia argues that because it also designs the underlying hardware, its software for managing AI is more efficient.
Amdocs, for instance, says it has used the Nvidia software to help some of its telecommunications customers automate their call centers, and ServiceNow has used Nvidia software for an AI product that helps customers automatically write emails, create presentations or write computer code.
Intimate Knowledge
Anthony Goonetilleke, chief strategy officer for Amdocs, which sells software to telecom companies, said Nvidia could rival cloud providers because of its intimate knowledge of GPUs.
“I think Nvidia has a slight edge here because they’re so focused.…They know their next line of chips, they know how you need to optimize their GPUs,” he said.
Nvidia sells the enterprise software packages on a subscription basis and based on the number of GPUs customers need. One consultant for companies that use GPUs for AI and buy the Nvidia app development software package says the subscription is competitively priced, compared to what other providers of cloud-based GPUs and software for developing apps charge.
Nvidia is still miles behind its cloud competitors, of course. It has fewer direct relationships with businesses, and its cloud and software products aren’t well known in the industry. One of Nvidia’s biggest challenges is making businesses aware of its products, said S. Somasegar, a managing director at venture capital firm Madrona.
Nvidia may also need to play a waiting game because some enterprises are pinching pennies in adopting AI or are taking a slower approach to the technology.
For instance, employees at two large companies whom Nvidia recently pitched to buy its enterprise software said they weren’t interested because they don’t yet need a large number of GPUs or Nvidia’s software to implement AI in their businesses.