Chipmaker Nvidia's growing appetite for leased data center capacity may herald a big change in the cloud computing market amid the rise of artificial intelligence, one analyst says. The chipmaker appears to be building its own "AI cloud," a strategy that would have ramifications for Nvidia stock as well as Amazon.com, Microsoft and Alphabet's Google.
With the data centers, Nvidia would rent out servers powered by its own chips as well as host its AI software development platform.
Nvidia Stock: Chipmaker Adds Data Center Capacity
Meanwhile, Nvidia suddenly has been leasing much more capacity than usual in advanced data centers specially equipped for artificial intelligence processing.
TD Cowen analyst Michael Elias noted an apparent large leasing deal between Nvidia and Digital Realty for data center capacity in Northern Virginia. He says Nvidia has been looking for additional data center capacity in several other deals. Elias said Nvidia's push into cloud computing could be a surprise development in 2025.
"We see the potential for Nvidia to accelerate its data center leasing in 2025 as it looks to procure more capacity that can be used for its 'AI cloud,' with the potential for Nvidia to outpace its hyperscale peers in data center leasing in 2025," he said in a report.
On the stock market today, NVDA stock popped 4.8% to 151.40 in midday trading. Also, Nvidia stock surged 171% in 2024.
Since the emergence of generative AI in late 2022, Microsoft and Amazon have been the two most active lessees of data center capacity, followed by Oracle, Google and Meta Platforms, Elias added.
The TD Cowen analyst checked with data center industry sources on Nvidia's purchasing.
"We were surprised to learn of the size of Nvidia's data center requirements as leasing 100 megawatt-plus blocks represented a meaningful divergence from its historical data center leasing approach, which involved leasing 10 to 15 megawatt capacity blocks," he added. "To that point, via our subsequent channel checks, we learned that these larger capacity blocks are intended to support an 'AI cloud'."
'Neoclouds' Take On Amazon, Microsoft
Further, Nvidia's possible interest in building an AI cloud coincides with the emergence of "Neoclouds" — new cloud computing players that rent out high performance servers specialized for AI processing.
They include startups CoreWeave, Lambda, Crusoe, Vultr and Together AI. Nvidia is an investor in CoreWeave, which is expected to launch an initial public offering in 2025.
Cloud titans Amazon Web Services, Microsoft and Google are the biggest customers of Nvidia AI accelerators.
Nvidia has been ramping up production of next-generation "Blackwell" AI, also called H200, chips. Also, Nvidia has been allocating Blackwell AI chips to CoreWeave and other neoclouds as well as its biggest cloud customers, say reports.
Further, the cloud computing titans have been diversifying their AI chip sources to reduce reliance on Nvidia. Broadcom and Marvell Technologies, both rivals of Nvidia, are designing custom AI accelerators for cloud titans as well as startup OpenAI, Apple and Meta Platforms.
AI Everywhere At CES 2025 With Spotlight On Nvidia CEO Jensen Huang
Nvidia Software Revenue
Nvidia's cloud software, service and support business generated about $2 billion in revenue in 2024, according to The Information. Its chip sales were on track to hit $120 billion.
Meanwhile, Nvidia's AI software platform helps companies build customized AI applications. While companies currently can rent Nvidia's AI tools on the AWS platform, Nvidia's profit margins would be higher with its own data centers.
Morningstar's PitchBook, which follows the venture capital industry, estimates that AI neoclouds will garner about $4 billion in revenue in 2024. It expects sales to surge to $32 billion by 2027.
According to a PitchBook report: "Thirty-nine data center operators have become colocation partners with Nvidia, leveraging the company's DGX (software) platform for AI workloads. These collaborations enable a range of cloud hosts to offer not only GPU compute but also a tailored combination of software and networking resources optimized for AI and machine learning."
Microsoft, which has struggled to ramp up AI compute infrastructure to meet OpenAI's needs, is reportedly CoreWeave's biggest customer. Further, Nvidia and Microsoft are among AI stocks to watch.
Nvidia Stock
Nvidia stock has rallied in early 2025 ahead of the CES technology show.
Shares jumped 5.4% to 144.47 last week. Friday's heavy-volume gain cleared the 50-day line decisively, broke a trendline and topped the Dec. 24 high of 141.90. All that gave a strong buy signal.
NVDA stock has a double-bottom base with a 146.54 buy point, right next to the top of a prior base.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and cloud computing.
