By Adam Clark
Nvidia is having an underwhelming year so far as investors fret about its biggest customers becoming competitors. The chip maker has a plan to sidestep the concern — backing smaller artificial-intelligence companies in exchange for a cut of their revenue.
Nvidia shares were down 0.6% at $196.40 in premarket trading. The stock is up 5.9% this year so far through to Wednesday's close, lagging well behind the broader semiconductor sector.
The stock is being hit by concerns that Big Tech companies such as Google-parent Alphabet and Amazon.com are increasingly offering access to their own custom AI chips as competition to Nvidia hardware. That means Nvidia needs to establish a wider base of customers for its processors.
Its latest plan is to back smaller AI cloud-computing businesses with a revenue-sharing and credit-support model.
"Through the partnership, AI clouds will sell Nvidia-powered cloud services, with Nvidia earning both standard product revenue and a share of the cloud revenue on the supported capacity," Nvidia CFO Colette Kress wrote in a blog post late Wednesday.
Kress added that the model provides Nvidia with a "recurring, usage-linked earnings stream" — something which might persuade investors to ascribe a higher valuation to the company if it offsets concerns about a boom-and-bust cycle.
Nvidia has already begun using the revenue-sharing business model with Australian firms SharonAI and Firmus, both of which have announced deals to build data centers using Nvidia hardware in recent weeks.
Revenue sharing takes Nvidia's support a step beyond its previous investments in so-called neoclouds such as CoreWeave and Nebius, which also use the company's AI chips for their own cloud-computing operations.
Write to Adam Clark at adam.clark@barrons.com
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