NVIDIA, both a supplier and investor of Lambda, has now become its largest customer. Media reports indicate that the company has reached an agreement with Lambda totaling $1.5 billion to lease servers equipped with its own GPUs. Analysts suggest that this deal continues NVIDIA's strategic roadmap of supporting 'small cloud service providers', similar to the previous agreement with CoreWeave, aiming to enhance competitiveness against traditional cloud giants such as Amazon and Google.
According to media reports, Lambda, a small cloud service provider focused on artificial intelligence and preparing for an IPO, has recently received strong support from its most important supplier. $NVIDIA (NVDA.US)$
Insiders revealed to the media that this summer, NVIDIA agreed to lease 10,000 GPU servers equipped with its own AI chips from Lambda for a period of four years, totaling a value of $1.3 billion.
Additionally, NVIDIA has reached another deal with the company worth $200 million to lease 8,000 servers equipped with NVIDIA chips, with specific timing yet to be determined. These contracts make NVIDIA Lambda's largest customer to date and lay a foundation for the company's upcoming IPO.
Media reports state that this is also the latest case of NVIDIA leveraging a 'circular' financial arrangement to promote its chips in the cloud market and assist small cloud service providers in competing with traditional giants such as Amazon and Google. This illustrates how capital markets in the AI sector are operating in an 'internal circulation': NVIDIA simultaneously acts as a supplier, investor, and customer, supporting multiple 'small cloud companies,' also referred to as 'neocloud.'
The business model is similar to CoreWeave.
Lambda's business model involves leasing data center space, deploying servers equipped with NVIDIA GPUs, and entering into contracts with customers to rent these servers. It remains unclear what the specific costs are for Lambda to lease GPU servers from NVIDIA, and how NVIDIA will record this transaction financially, as it is both the buyer and seller, while also being a shareholder in Lambda.
Another insider informed the media that NVIDIA's own researchers will also utilize the GPU servers leased from Lambda.
In addition to NVIDIA, Lambda's other major clients include Amazon and Microsoft, which together contributed nearly $114 million in cloud revenue for the company in the second quarter. Notably, Amazon and Microsoft primarily utilize Lambda's GPU servers for internal purposes rather than for customer services on AWS or Azure platforms.
Lambda expects its cloud revenue to exceed $1 billion by 2026 and to surpass $20 billion by 2030, targeting contracts with major AI developers such as OpenAI, Google, Anthropic, and xAI.
Lambda also anticipates that its computing power will reach nearly 3 GW (gigawatts) by 2030, which would be equivalent to almost half of the total computing power of some of the largest cloud service providers, while it was only 47 MW this past second quarter. How the company plans to achieve this growth remains unclear, but going public may help it expand operations through debt financing.
Lambda's business model and high customer concentration are similar to those of CoreWeave. The latter is a larger GPU cloud service provider that has recently gone public and has also received substantial support from NVIDIA.
Previously, Lambda primarily signed small-scale, short-term GPU leasing contracts, while this deal with NVIDIA is the largest in its history, likely providing momentum for its market promotion ahead of its expected public listing in the first half of next year.
Supporting small companies is a consistent strategy of NVIDIA.
NVIDIA has consistently supported companies that are willing to use its chips and are more inclined to purchase a variety of hardware products than traditional cloud giants. For instance, NVIDIA had a conflict with Microsoft over the design of GPU server racks, while Lambda's executives are internally discussing whether to adopt NVIDIA's new optical networking technology currently in development.
NVIDIA has also assisted CoreWeave in its rapid rise. CoreWeave, which transitioned from crypto mining, signed a nearly identical agreement with NVIDIA early in its transformation. This agreement helped CoreWeave secure debt financing and expand its cloud business, thereby capturing market share from traditional cloud providers.
NVIDIA supports small cloud service providers to long-term safeguard its core business. Although NVIDIA's largest customers are still Microsoft, Amazon, and Google, these tech giants are also developing their own AI chips in an attempt to reduce their dependence on NVIDIA.
Customer Concentration Risk
Although Amazon and Microsoft procure far more GPUs for their own data centers than they rent from third parties like Lambda, both companies have stated that their GPU servers are operating at nearly full capacity around the clock, and the pace of data center expansion is not keeping up with demand.
The contract size between Microsoft and Lambda is significantly smaller than its leasing agreement with CoreWeave; however, Lambda executives indicated that the company is negotiating larger-scale collaborations with other potential clients.
Nonetheless, it remains uncertain whether Lambda can secure such deals. The company's executives also acknowledged that, like other cloud service providers, Lambda faces issues related to power supply and limited data center space.
CoreWeave has previously relied on external leased data centers but recently acquired a large power and data center company for $9 billion, planning to build its own sites to reduce costs.
NVIDIA's Partnerships
According to media reports, Lambda executives stated that the GPU leasing agreement signed with NVIDIA for $1.3 billion, codenamed 'Project Comet', will be used to support its emerging cloud computing business, DGX Cloud. Through this platform, NVIDIA leases GPUs to cloud service providers, which then sublease them to companies developing AI; NVIDIA's own researchers are also using this platform.
Analysis indicates that NVIDIA values Lambda for multiple reasons, one of which is that Lambda is attracting more customers to switch to NVIDIA GPUs. For instance, Lambda recently signed a one-year collaboration agreement with the image generation startup Midjourney, assisting the company in migrating its code, originally running on Google AI chips, to NVIDIA's next-generation Blackwell GPUs.
Lambda executives stated that converting Google AI chip users to NVIDIA GPU users has garnered the company higher evaluations internally at NVIDIA.
In recent years, Google's TPU (Tensor Processing Unit) chips have strengthened their competitiveness in the AI field. Google has also engaged with cloud service providers focused on GPUs, such as CoreWeave, hoping they will deploy Google chips; currently, one company has agreed to collaborate.
Editor: Jayden