Why NVIDIA is refocusing on AI instead of cloud services
What's the story
NVIDIA has quietly shelved its ambitious plan to take on cloud giants like Amazon Web Services (AWS), Google Cloud, and Microsoft Azure. The chipmaker is now refocusing its DGX Cloud division inward, prioritizing internal AI model development over external service sales. This strategic pivot aims to protect NVIDIA's dominant AI chip market share, estimated at over 80%, rather than chasing cloud revenue.
Strategic changes
DGX Cloud's shift in focus and leadership
The restructuring of the DGX Cloud division comes with a shift in focus from external customers to internal development. The cloud team will now primarily work for NVIDIA engineers developing AI models. This change also includes the reassignment of Alexis Black Bjorlin, head of the cloud business unit, who had joined from Meta in 2023.
Market struggles
DGX Cloud's challenges and market performance
Despite its promise of superior chip performance over traditional cloud providers, DGX Cloud has struggled to attract enough customers. The service's main problem was technical: it couldn't run across different cloud providers' data centers, making troubleshooting nearly impossible. NVIDIA had even rented servers from major cloud providers, customized them to exacting standards, then tried renting them out to AI developers at premium rates.
Revenue concerns
NVIDIA's cautious approach toward cloud expansion
NVIDIA CEO Jensen Huang was also wary of expanding DGX Cloud, fearing it would alienate AWS, Google, and Microsoft. These companies account for nearly half of NVIDIA's revenue through GPU purchases. The cloud giants viewed DGX Cloud as a competitive threat that could hasten their development of proprietary AI chips.
Strategic withdrawal
NVIDIA's future plans for DGX Cloud
Despite its withdrawal from cloud competition, NVIDIA remains a leader in AI chip sales with over 80% market share. The company plans to invest $26 billion leasing servers from cloud providers, becoming one of their largest customers. A spokesperson said that NVIDIA will "continue to invest in DGX Cloud" to support internal R&D and provide software capabilities to cloud partners.