Nvidia ( NVDA 0.24%) has established a leading position in artificial intelligence (AI) by dominating the AI chip market and branching out into numerous related areas. Rather than going it alone, Nvidia has opted to collaborate with other companies—including smaller ones—during this surge in AI demand. Among its most important partners is CoreWeave ( CRWV 2.77%).
CoreWeave went public in March, and since then, its stock price has soared by around 195%, driven by rapid revenue growth and its strong connection with Nvidia. By the close of the second quarter, Nvidia owned a 7% share in CoreWeave, which itself comprises 91% of Nvidia’s investment holdings. CoreWeave’s business model is closely tied to Nvidia, as it provides customers with access to Nvidia’s powerful graphics processing units (GPUs) through its cloud service platform.
Nvidia’s recent agreement—a $6.3 billion contract with CoreWeave—marks a major development for investors in both companies. Here’s what’s happening.
Image source: Getty Images.
A 1,300% gain
Let’s briefly recap what Nvidia and CoreWeave do. Nvidia stands at the forefront of AI chip technology, with its GPUs and related products generating record-breaking revenues and profits recently. With the highest-performing chips available, Nvidia has become a must-have supplier for tech companies intent on AI innovation. This has driven Nvidia’s stock up by 1,300% over the last five years and lifted its market cap beyond $4 trillion, making it the largest company globally.
CoreWeave, as outlined earlier, gives clients cloud-based access to Nvidia’s computing capabilities. Users can rent GPUs on an hourly basis or for longer periods, offering them significant flexibility. With about 250,000 GPUs distributed over 32 data centers, CoreWeave has often been the earliest provider of Nvidia’s latest technologies. As a result, the company has experienced explosive revenue growth, having tripled its sales in the most recent quarter. CoreWeave’s fortunes are closely intertwined with Nvidia’s—if demand for Nvidia’s GPUs falls, both companies could see negative impacts.
This leads us to the newest agreement between the two firms. Nvidia has committed to a $6.3 billion order with CoreWeave, agreeing to purchase any cloud capacity that CoreWeave is unable to sell. This arrangement, an extension of their 2023 deal, will last until April 13, 2032.
Eliminating a risk
This contract represents a notable shift for both companies and their shareholders. For CoreWeave, it removes the significant risk of being left with unused capacity. Despite strong projections for AI spending, any temporary decline in demand could have serious consequences. Nvidia’s willingness to buy up unsold capacity means that CoreWeave’s revenue is protected, even if there’s a dip in customer demand. This gives current shareholders peace of mind and may encourage more cautious investors to consider buying in.
For Nvidia, this action demonstrates strong confidence in AI demand for the foreseeable future. The company is unlikely to enter such a significant agreement unless it expects sustained growth. This aligns with Nvidia’s recent forecast that global spending on AI infrastructure could reach $4 trillion by decade’s end. Nvidia has stated that it works closely with clients to understand their future requirements, giving it a clear view of how demand may evolve.
In summary, this new partnership between Nvidia and CoreWeave is highly beneficial for both sets of shareholders—CoreWeave reduces its exposure to risk, and Nvidia underscores ongoing demand for AI technologies.
Given all this, both companies stand out as excellent choices for investors looking to benefit from the expanding AI sector in the years ahead.
