Nvidia has unveiled a new trajectory that may significantly impact AI server producers like Dell and other Big-Tech partners in the software space.
The Information reports that CEO Jensen Huang recently led discussions, expressing concerns about whether leading clients such as Amazon Web Services (AWS) and Microsoft have enough data center capacity to accommodate Nvidia's AI hardware.
New: Nvidia is trying to dictate how its chips are installed in its customers' data centers, and is designing server racks too.
That led to a standoff with Microsoft and could eat up profit margins of Dell, HPE and Supermicro. $smci $dell $hpe pic.twitter.com/UKMgyCzaOB
— Amir Efrati (@amir) June 18, 2024
Data Center Capacity Concerns
Huang questioned if cloud service firms are scaling their infrastructure swiftly enough to handle the increasing volume of Nvidia's GPUs. This could affect Nvidia's revenues, given that AWS and Microsoft have represented a considerable portion of the company's sales lately. Nvidia's internal discussions have led to an intensified effort to ensure that these cloud providers can meet the necessary requirements in terms of space and power to support their orders.
Nvidia's Strategic Expansion
Addressing these capacity constraints, Nvidia is pivoting towards software and cloud services, entering a field where it will directly compete with some of its principal customers. The company is intensifying its own AI research, as illustrated by its new series of open models crafted to produce synthetic data for training large language models (LLMs), its top-performing NV-Embed embedding model, or end-user focused products such as its new Project G-Assist, an AI-powered tool designed to offer real-time support to PC gamers.
This approach mirrors the challenges previously encountered by hardware-centric companies like Cisco. Huang aims to preempt a similar fate for Nvidia by diversifying its portfolio, ensuring the company is not overly reliant on hardware sales.
Market Implications
Nvidia's broadened strategy bears substantial consequences. By branching into software and cloud services, the company is not only seeking new revenue sources but also positioning itself as a comprehensive player in the AI industry.
However, this shift might create tensions with existing customers who could perceive Nvidia's new direction as encroaching on their territory. Nvidia's proactive measures to address data center scalability and its transition into software and cloud services underline its ambition to stay ahead in the fast-changing AI domain.
