Nvidia CEO Jensen Huang.
David Paul Morris/Bloomberg via Getty Images
Nvidia is finding new ways to support neoclouds as the industry faces growing pains.
It could be on the hook for an entire data center, not just the AI chips inside.
A neocloud shakeout looms, with stronger players eyeing assets from struggling rivals.
Nvidia helped nurture a wave of neoclouds. Now, they’re experiencing growing pains — and leaning on financial support from mom and dad.
Neoclouds, which rent out AI computing power, have expensive ambitions: buying billions in chips and securing the data center capacity to run them. Although demand for AI is off the charts, borrowing that kind of money has gotten harder.
With construction delays and power shortages, lenders worry young neoclouds won’t deliver on their plans and repay their debts.
Those fears intensified Thursday as neocloud stocks plunged amid worries about tougher data center regulations after the midterm elections and delays at multibillion-dollar infrastructure projects for Microsoft .
Nvidia has good reason to help. Neoclouds give it access to thousands of customers beyond cloud giants like Google, Microsoft, and Amazon, which are developing rival chips. In the past few years, Nvidia has bolstered neoclouds through investments and unusual commitments to rent compute if things go wrong.
Now, Nvidia may be going a step further. It’s in talks to guarantee construction financing for a data center in West Virginia that the neocloud Nscale is building for Anthropic, The Information reported.
If Nscale fails to make payments, Nvidia could suddenly find itself in the real estate business — on the hook for a multibillion-dollar data center it never planned to run.
The limits of Nvidia’s generosity
In July, Nvidia launched a program with $36 billion in commitments, expanding its role as a guarantor — like a parent cosigning a lease. It promised to pay for unused compute resources so neoclouds could borrow money more easily, and took a cut of revenue in exchange.
Nvidia’s growing role has sparked concern. In August, it paused some deals in this program over concerns about antitrust scrutiny, The Wall Street Journal reported.
Nvidia said at the time that the program remained in place and was evolving.
The structure of these guarantees has gone through three or four iterations, said Alex Yeh, CEO of the Nvidia-backed neocloud GMI, with changes occurring roughly every quarter.
GMI Cloud founder and CEO Alex Yeh.
GMI Cloud
As it seeks to support the neocloud industry, Nvidia has to balance helping partners thrive without taking on too much risk itself.
Yeh, whose company is part of the backstopping program introduced in July, said even the world’s most valuable company can’t help everyone.
“You have limited capital, even as big as Nvidia,” he said. “You want to be selective of the companies you want to help.”
Neocloud consolidation could be an asset grab
The neocloud industry could be headed for consolidation — especially if compute supply catches up with demand, and rental prices fall. Bigger cloud companies could buy smaller rivals or simply snap up their assets.
Gartner predicts that roughly 80% of neoclouds will cease operating independently by 2030.
Financing is already flowing toward the biggest neoclouds with proven track records and major customers, said Billy Libby, cofounder and CEO of the lending firm Upper90 — potentially leaving smaller players struggling.
“Financing’s getting more expensive, lenders want more security, and that means that those groups end up aggregating capital around the best and biggest companies,” he said.
Some of those pressures are creating opportunities. Yeh said GMI has been offered data center capacity after smaller neoclouds couldn’t secure the financing needed to move forward.
“For me, it’s literally deal season,” he said.
And consolidation might not look like neoclouds buying one another. Instead, stronger players may pick up pieces from struggling rivals, Yeh said, like chips, data center capacity, customer contracts, and teams.
“I wouldn’t acquire neoclouds,” he said. “I would acquire strategic assets.”
Have a tip? Contact this reporter via email at gweiss@businessinsider.com or Signal at @geoffweiss.25. Use a personal email address, a non-work WiFi network, and a non-work device; here’s our guide to sharing information securely.
Read the original article on Business Insider
