Meta Makes Cloud Play To Sell Excess AI

Smaller Fish Quaker

One concern comes from quarters where companies like CoreWeave are trying to court larger partners, to sell data center capacity that’s constantly being fought in local build areas. But some contend that Meta may, in a sense, be handing CoreWeave a pink slip.

The logic goes like this: in the past, Meta has bought data center capacity from CoreWeave. So if it’s now entering that market itself, it’s not just sloughing off a vendor, but becoming competition to that same former vendor.

Copilot told me in Bing:

“CoreWeave, a prominent AI cloud computing provider, has entered into a $14.2 billion agreement with Meta to supply extensive computing power through Nvidia’s GB300 systems. This partnership is set to run until December 2031, with an option for expansion into 2032.”

I looked it up. It’s true. In a press release from last September, a CoreWeave spokesperson is quoted thusly:

“The agreement underscores that behind every AI breakthrough are the partnerships that make it possible.”

Making Moves

Meta’s new announcement has impacted its stock price, too, in a good way, with an approximate 9% spike, reversing earlier losses throughout the last few months.

“Investors have been looking for Meta to diversify its business and monetize its multi-hundred-billion-dollar investment in advanced data centers and artificial intelligence infrastructure,” Jonathan Vanian explains at CNBC. “Almost all the financial benefits of Meta’s AI spending to date have been recognized in the company’s core advertising business, which has seen dramatically improved targeting capabilities and has offered a wider suite of creative tools to marketers. Meta still gets 98% of its revenue from digital ads. Zuckerberg has been trying to change the narrative, with cloud being perhaps the most ambitious new effort.”

So this is a boon for investors, letting them breathe easier. But time will tell how effective Zuckerberg’s new effort is.

Nebius and the Neoclouds

Another smaller company impacted by the change is Nebius. Nebius was started by the co-founder and former CEO of a big Russian firm called Yandex named Arkady Volozh, who launched it from Amsterdam. Nebius stock has also dropped on Meta’s announcement.

Tech media people are calling CoreWeave and Nebius “neoclouds” and suggesting that these neoclouds will be hard-hit by Meta’s new division. But I had never heard this term before, so I looked it up.

“Neocloud” essentially just means that the cloud service is AI-native, that it is designed for AI activities instead of traditional computing. Keep in mind that the cloud revolution predated AI by years.

So where blue chip cloud providers like AWS and Microsoft Azure are “AI-agnostic,” offering services to LLM-driven tenants and pre-AI ones as well, firms like Nebius cater specifically to clients operating AI that is poised to turn into AGI, to some extent, on some timeline, TBD.

The Spark for the Fire

In terms of LLMs, Meta also created Muse Spark, a general-purpose model, earlier this year. Like other such models, it can be hard to tell exactly how much use Spark is getting, but reports show that it’s largely applied internally, to Meta’s own tools. Think of Spark as the AI engine for Whatsapp, Facebook and other social media platforms, as well as an integration for Meta’s smart Ray-Bans.

Copycat Deals

In light of Meta’s cloud entrance, some feel that Zuckerberg may have been watching what went on in May, as the news broke that xAI will rent the entire capacity of Colossus 1 in Memphis to Anthropic. That’s 300 megawatts of power, and over 200,000 Nvidia chips, at a cost to the client of around $1.25 billion per month.

All of this sets the precedent for more of these deals. Meanwhile, there’s news that OpenAI wants the U.S. government to take a massive stake in Altman’s company. Let’s see what happens through the second half of this year. Stay tuned.