Microsoft inks deal with AI computing power with Nvidia-backed CoreWeave that could be worth billions

Microsoft’s massive investment in OpenAI has placed the company at the center of the artificial intelligence boom. But that’s not the only place the software giant is opening its wallet to meet the growing demand for AI-powered services.

CNBC has learned from people familiar with the matter that Microsoft has agreed to spend potentially billions of dollars over multiple years on cloud computing infrastructure from startup CoreWeave, which announced Wednesday it had raised $200 million. That funding comes just over a month after the company hit a $2 billion valuation.

CoreWeave sells easy access to Nvidia’s graphics processing units, or GPUs, which are considered the best available on the market for running AI models. Microsoft signed the CoreWeave deal earlier this year to ensure that OpenAI, which runs the viral chatbot ChatGPT, will have adequate computing power in the future, said one of the people, who asked not to be named for confidentiality reasons. OpenAI relies on Microsoft’s Azure cloud infrastructure for its heavy computing needs.

Microsoft and CoreWeave both declined to comment.

The race for generative AI began late last year after OpenAI introduced ChatGPT to the public, demonstrating that AI can take human input and produce sophisticated responses. Many companies, including Google, have since rushed to add generative AI into their products. And Microsoft has been busy releasing chatbots for its own services, like Bing and Windows.

With so much demand on its infrastructure, Microsoft needs more ways to leverage Nvidia’s GPUs. CoreWeave CEO Michael Intrator declined to comment on the Microsoft deal in an interview last month, but said revenue has “increased many multiples from 2022 to 2023.”

The funding CoreWeave announced on Wednesday from hedge fund Magnetar Capital was an extension of a $221 million round in April. Nvidia has invested $100 million in the earlier funding, Intrator said. CoreWeave was founded in 2017 and has 160 employees.

Nvidia stock price is up 170% this year. The company’s market cap briefly surpassed $1 trillion for the first time this week after it released a forecast for the July quarter more than 50% higher than Wall Street’s estimates.

The chipmaker’s growth will be “largely driven by the data center, reflecting a sharp increase in demand related to generative AI and large language models,” said Colette Kress, chief financial officer at Nvidia, during the last week’s earnings call. OpenAI’s GPT-4 large language model, trained with Nvidia GPUs on extensive online data, is at the heart of ChatGPT.

Kress referred to CoreWeave by name during the call, and in March, Nvidia CEO Jensen Huang mentioned CoreWeave in his presentation at Nvidia’s GTC conference.

CoreWeave’s website says the company can provide computing power that is “80% cheaper than legacy cloud service providers.” Among other cards, CoreWeave offers Nvidia’s A100 GPUs, which developers can also find through the Amazon, Google and Microsoft clouds.

Additionally, CoreWeave has less expensive Nvidia A40 GPUs marketed for visual computing, while the A100 targets artificial intelligence, data analytics, and high-performance computing. Some CoreWeave customers have struggled to get enough GPU horsepower on large clouds, Intrator said. Sometimes prospective customers asked for newer A100 or H100 GPUs from Nvidia, and the company recommended A40 GPUs instead.

These “will do a great job at a very affordable price,” Intrator said.

Microsoft has been in discussions with Oracle about the two companies leasing servers from each other if they need additional capacity, The Information reported earlier this month, citing an anonymous person.

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