A group of startups specializing in renting out AI chips for artificial intelligence projects has been raising significant amounts of funding over the past year. One such company, Vultr, recently secured $333 million from AMD and LuminArx Capital, bringing its valuation to $3.5 billion. The demand for GPUs for AI development has surged, making renting out these chips a lucrative business model for companies like Vultr. According to Vultr CEO JJ Kardwell, AI is the fastest growing segment in the infrastructure market.
Investors have poured around $20 billion into 25 companies that offer access to GPUs for AI projects. This includes both equity investments and debt financing from prominent financial institutions. While this sector is still emerging, it is already attracting significant attention. Dylan Patel, an analyst at SemiAnalysis, envisions new giants emerging from what he calls the “neoclouds,” referring to these GPU rental startups.
Coreweave has emerged as a standout success story within this niche industry. Originally focused on cryptocurrency mining, the New Jersey-based company pivoted to renting out GPUs for AI projects after the crypto market downturn in 2018. With $1.75 billion in equity funding and $8.1 billion in debt, Coreweave has achieved a remarkable $23 billion valuation. Other players in this space include startups like Crusoe Energy and Northern Data, as well as established companies like Vultr and OVH.
Neoclouds are able to offer lower prices for GPU rental compared to traditional cloud providers like AWS by selling “bare metal” GPUs without additional software and services. Despite potential challenges like fundraising and managing data centers, these startups have found success by focusing on the high demand for AI chips and the cost advantages they can offer. However, the softer demand for AI chips and the upcoming release of new Nvidia chips could pose challenges for smaller players in this market.
While larger neoclouds like Coreweave are scaling up rapidly and securing major contracts with companies like Microsoft and Oracle, smaller startups may face difficulties in the future. Some startups have already started reducing prices and facing potential bankruptcies. It remains to be seen how the competitive landscape in the AI chip rental market will evolve, especially with the entry of more efficient chips and potential oversupply issues. The future of these neocloud startups will depend on how well they navigate these challenges and adapt to changing market conditions.
