Nvidia Expands Data Center Strategy

Nvidia (NASDAQ: NVDA)’s CEO Jensen Huang is advocating for a comprehensive approach to becoming a major data center component provider, covering software, networking technologies, and design services, as reported by the Wall Street Journal.

This initiative follows a recent earnings report where Nvidia exceeded Wall Street expectations, coinciding with Advanced Micro Devices (NASDAQ: AMD)’s announcement of its nearly $5 billion acquisition of ZT Systems, a data-center design and manufacturing company.

Nvidia is capitalizing on its dominant position in the AI-chip market, commanding over 80% market share, to provide a more integrated suite of products and services, which Huang describes as “AI factories.”

These AI factories are data centers that create and run advanced AI tools like OpenAI’s ChatGPT. Huang aims to reposition Nvidia from just a hardware supplier to a comprehensive provider of essential data center components, according to the WSJ.

The strategic plan includes leveraging Nvidia’s proprietary software, CUDA, a vital element of the company’s success for the last 17 years, which allows developers to optimize the computing power of Nvidia’s GPUs.

Additionally, Nvidia is investing in InfiniBand, a high-speed networking protocol extensively employed in AI training. The company purchased Mellanox (NASDAQ: MLNX) Technologies, a leading manufacturer of InfiniBand equipment, five years ago for nearly $7 billion.

Nvidia is also branching into AI-optimized Ethernet services, expected to yield substantial revenue within the next year, as stated by Chief Financial Officer Colette Kress.

These services are part of Nvidia’s wider product range for data centers, which includes central processors and networking chips designed to work seamlessly together. The company is customizing its offerings to cater to different industries like healthcare and robotics by delivering specialized software and hardware configurations.