Nvidia spends $1.5 billion to rent GPU servers equipped with its own chips from Lambda.

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According to media reports, Lambda, a small AI cloud service provider preparing for an IPO, has recently received strong support from its most important supplier, Nvidia.

Sources revealed to the media that this summer, Nvidia agreed to lease 10,000 GPU servers equipped with its own AI chips from Lambda for four years, with a total value of $1.3 billion.

In addition, Nvidia made another $200 million deal with the company to lease 8,000 servers equipped with Nvidia chips, with the specific time frame yet to be determined. These contracts make Nvidia Lambda's largest customer to date and lay the foundation for Lambda's upcoming IPO.

The media notes that this is also the latest example of Nvidia promoting its chips into the cloud market and assisting small cloud providers in competing with traditional giants like Amazon and Google through "circular" financial arrangements. This also demonstrates how the capital market in the AI field "circulates internally": Nvidia acts as supplier, investor, and client to support multiple "small cloud companies," also known as "neoclouds."

Business Model Similar to CoreWeave

Lambda's business model is to lease data center space, deploy servers with Nvidia GPUs, and sign contracts with customers to rent out these servers. It is still unclear what Lambda's specific cost is for leasing GPU servers to Nvidia and how Nvidia accounts for the transaction financially, as Nvidia is simultaneously a buyer, supplier, and a Lambda shareholder.

Another source told the media that Nvidia's own researchers will also use the GPU servers leased from Lambda.

Besides Nvidia, Lambda's other major customers include Amazon and Microsoft. In the second quarter, these two companies together contributed half of the company's nearly $114 million cloud revenue. Notably, Amazon and Microsoft primarily use Lambda's GPU servers for internal purposes rather than for AWS or Azure platform customer services.

Lambda expects its cloud revenue to exceed $1 billion by 2026 and surpass $20 billion by 2030, aiming to secure contracts from major AI developers such as OpenAI, Google, Anthropic, and xAI.

Lambda also projects its computing power will reach nearly 3 GW (gigawatts) by 2030, nearly half of what some of the largest cloud providers currently possess, whereas in the second quarter this year it was just 47 MW. How the company will achieve this growth is still unclear, but going public may help it expand operations through borrowing.

Lambda’s business model and high customer concentration is similar to CoreWeave, a larger GPU cloud provider that also recently went public and received extensive support from Nvidia.

Previously, Lambda mostly signed small-scale, short-term GPU rental contracts, but this deal with Nvidia is its largest ever and will likely boost its market promotion ahead of its planned IPO in the first half of next year.

Supporting Small Companies is Nvidia’s Usual Strategy

Nvidia consistently supports companies willing to use its chips and more willing than traditional cloud giants to purchase varied hardware products. For example, Nvidia once clashed with Microsoft over GPU server rack designs; Lambda executives are also internally discussing whether to adopt Nvidia’s new optical networking technology currently in development.

Nvidia also helped CoreWeave rise rapidly. CoreWeave transitioned from crypto mining and, early in its transformation, signed nearly the same agreement with Nvidia as Lambda did. The agreement helped CoreWeave secure debt financing and expand its cloud business, gaining market share from traditional cloud providers.

Nvidia’s support for small cloud providers aims to safeguard its core business in the long run. Although its largest customers are still Microsoft, Amazon, and Google, these tech giants are also developing their own AI chips to reduce reliance on Nvidia.

Customer Concentration Risks

Although Amazon and Microsoft purchase far more GPUs for their own data centers than they lease from Lambda and other third parties, both companies say their GPU servers run at nearly full capacity around the clock and data center expansion is not keeping up with demand.

Microsoft’s contract with Lambda is much smaller than its lease agreement with CoreWeave, but Lambda executives say the company is negotiating larger collaborations with other potential customers.

However, whether Lambda can secure such deals remains uncertain. Company executives also admit that, like other cloud providers, Lambda faces challenges such as limited power supply and data center space.

CoreWeave also previously relied on leasing external data centers, but recently acquired a large power and data center company for $9 billion and plans to build its own sites to lower costs.

Nvidia’s Partnerships

According to media reports, Lambda executives said the $1.3 billion GPU leasing deal with Nvidia, codenamed “Project Comet,” will be used to support its emerging cloud computing business DGX Cloud. Through this platform, Nvidia leases GPUs from cloud service providers, then subleases them to AI development firms; Nvidia’s own researchers are also using the platform.

Analysts say Nvidia values Lambda for multiple reasons, one of which is Lambda’s success in attracting more customers to switch to Nvidia GPUs. For example, Lambda recently signed a one-year partnership with image generation startup Midjourney, helping migrate its code, formerly running on Google AI chips, to Nvidia’s new generation Blackwell GPUs.

Lambda executives said converting Google AI chip users to Nvidia GPU users earned the company a higher reputation within Nvidia.

Google’s TPU (Tensor Processing Unit) chips have become more competitive in the AI field in recent years. Google has also approached GPU-focused cloud providers like CoreWeave, hoping they would deploy Google chips, and one company has already agreed to cooperate.

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