The AI ​​boom is in full swing, making Nvidia an undisputed leader. The company's GPUs have become the preferred chips for AI companies of all sizes. However, media reports that TensorWave, established at the end of last year, is making waves by launching a cloud computing service that only offers competition to Nvidia's rival AMD hardware for processing AI workloads.

Chief Executive Officer and Co-Founder Darrick Horton of TensorWave stated in an interview with TechCrunch:

"We realized this was an unhealthy monopoly phenomenon, one that prevents end-users from accessing computing resources and stifles innovation in the AI field. Out of our desire to democratize AI, we decided to provide a viable alternative to restore competition and choice."

Located in Sin City

According to reports, Horton, along with TensorWave's other two co-founders Jeff Tatarchuk and Piotr Tomasik, met through the sport of Pickleball. They later reached a consensus on the issue of supply constraints due to the GPU computing power monopoly, ultimately leading to the creation of TensorWave.

TensorWave is headquartered in Las Vegas, an unusual choice for a cloud infrastructure startup. However, Horton mentioned that the team saw potential in this opportunity. "We believe Las Vegas has the potential to become a thriving ecosystem for technology and startups."

This prediction is not entirely divorced from reality. According to Dealroom.co data, Las Vegas is home to over 600 startups, employing more than 11,000 employees, and attracted over $4 billion in investment in 2022.

Compared with many major cities in the usa, Las Vegas also has lower energy costs and operating expenses. In addition, Tomasik and Tatarchuk have close connections with the local venture capital community.

Tomasik was previously a general partner at the Las Vegas-based seed fund 1864 Fund, and now collaborates with non-profit accelerator StartUp Vegas and Vegas Tech Ventures. Tatarchuk is an angel investor for the incubator agency Fruition Lab.

These connections helped TensorWave become one of the first cloud computing services in the market to offer AMD Instinct MI300X instances for processing AI workloads. TensorWave offers services to rent GPU computing resources by the hour and requires a minimum contract term of at least six months.

Centered around AMD

Media reports that the low-cost, on-demand GPU cloud market is currently thriving. Horton states that TensorWave has a clear competitive advantage.

First is the price. Horton points out that the AMD MI300X is much cheaper than the current popular nvidia GPU H100, allowing TensorWave to pass on the cost savings to customers. He did not disclose the specific instance pricing for TensorWave, but to beat the H100, pricing must be below $2.50 per hour.

Second is performance. Horton cited benchmark test data showing that the MI300X excels in running (but not training) AI models over the H100, especially in text generation models like Meta's Llama 2.

In addition to TensorWave, other companies betting on AMD AI chips include startups Lamini and Nscale, as well as larger, more established cloud providers such as Azure and Oracle.

Analysis believes that the current favorable factors for AMD chip users are the continuous shortage of Nvidia GPUs and the delay in the release of the Blackwell chip by Nvidia. However, as the manufacturing of key chip components (especially memory) accelerates, the shortage may soon be alleviated. This will allow Nvidia to increase the shipment volume of the H200, with significant performance improvements in this new product.

For emerging cloud service providers relying on AMD hardware, another existing challenge is how to overcome the competitive barrier built around Nvidia's AI chips. The industry generally believes that Nvidia's development software is more mature, easier to use, and widely deployed. Even AMD's CEO, Lisa Su, admitted that using AMD chips "requires effort."

Looking further ahead, as mega-companies increase investment in customized hardware, the challenge of focusing on price competition may become increasingly difficult. For example, Google offers its TPU; Microsoft recently launched two custom chips, Azure Maia and Azure Cobalt; while Amazon AWS has Trainium, Inferentia, and Graviton.

Horton stated:

"As developers seek alternative solutions that can effectively handle their AI workloads, especially as memory and performance requirements increase, coupled with delays caused by production issues, AMD will maintain a leading position for a longer period and play a key role in the commoditization of computing in the AI era."

Projected recurring revenue to increase eightfold by year-end, with a valuation already reaching $0.1 billion.

TensorWave currently has $3 million in annual recurring revenue. Horton stated that once TensorWave increases the capacity of its MI300X to 20,000, it is expected that recurring revenue will reach $25 million by year-end, an eightfold increase.

Assuming a cost of $15,000 per GPU, 20,000 MI300X will mean an investment of $0.3 billion. However, Horton claims that TensorWave's cash burn rate is "completely sustainable." TensorWave previously stated that it would use its GPUs as collateral for large-scale debt financing, a method adopted by other datacenter operators, which Horton says is still part of the company's plans.

He continued:

"This reflects our strong financial health. By strategically positioning ourselves to provide value where it is most needed, we are preparing for potential headwinds."

However, when asked about the current number of customers TensorWave has, Horton refused to answer due to "confidentiality reasons", but emphasized TensorWave's publicly announced partnerships with network backbone supplier Edgecore Networks and AI inference startup MK1 founded by former Neuralink engineers.

Horton stated that the company is rapidly expanding its computing power to meet increasing demands. He also added that TensorWave plans to start using AMD's next-generation MI325X GPU, which may be launched in the fourth quarter of this year.

Investors are satisfied with TensorWave's growth trajectory. Nexus VP revealed on Wednesday that the institution led a $43 million financing round, with participants including Maverick Capital, StartupNV, Translink Capital, and AMD Ventures. This is TensorWave's first round of funding, and the company's valuation reached $100 million after the financing.