Chasing a $400 Billion Prize: Google's New AI Cloud Company Is a Threat to Nvidia and CoreWeave

At its recent I/O conference, Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) shook up the artificial intelligence (AI) world by announcing a slew of new AI services. But one of the company's most important announcements was a new AI cloud computing company it started with venture firm Blackstone.

While in its early stages, this new company could impact Nvidia's (NASDAQ: NVDA) AI hardware business and CoreWeave's (NASDAQ: CRWV) AI cloud business. Here's how.

Image source: Getty Images.

Here's how Alphabet's new venture could affect Nvidia's business

Nvidia currently enjoys a dominant position in the AI space, with its chip designs accounting for 86% of revenue in the data center market.

Nvidia built that lead over many years, developing highly capable processors that were first great at graphics processing and are now exceptional at AI compute. The result has been soaring revenue, up 85% in the fiscal 2027 first quarter to $81.6 billion and non-GAAP earnings of $1.87 per share, up 140% for the year.

But not everyone is happy about Nvidia's dominance. Google, which relies heavily on Nvidia's processors in its data centers, has been developing its own tensor processing units (TPUs) for years to offload some of its hardware needs.

And now it may be ready to utilize its TPUs even more with its new AI cloud company. The joint venture with Blackstone would deploy 500 megawatts of capacity by 2027 and would rely heavily on Google's own TPUs for processors. The company "plans to scale significantly over time" from there. Since its TPUs are purpose-built for AI and designed by Google, it could be more efficient for Google to use its own TPUs for training and AI inference for its Gemini AI model.

This could eventually impact Nvidia because Alphabet is spending so much -- up to $185 billion this year alone -- on capital expenditures (mostly for data centers). And the company says it could spend even more next year. Some of Alphabet's AI spending could eventually shift away from Nvidia's processors, as it increasingly uses its own TPUs.

That would clearly be a negative thing for Nvidia, and it comes at a time when many other tech giants, including Apple, Amazon, and Microsoft, are all working on their own custom AI chip designs.

Nvidia investors don't need to be concerned about this just yet, but Google's move is part of a broader narrative of tech companies wanting to be less reliant on Nvidia -- and that's worth keeping a close eye on.

CoreWeave could eventually be under threat, too

The other part of this is Google's encroachment into CoreWeave's AI cloud-as-a-service business. This market is very large, reaching an estimated $400 billion by 2031.

CoreWeave has a massive head start over Google and significant backing, with Nvidia recently investing $2 billion in the company. But offering an alternative to CoreWeave's services is already prompting some analysts to warn of the effects on CoreWeave's business.

Bernstein analyst Madison Rezaei said that this encroachment on CoreWeave could turn into a "more serious offensive" and that "competition will compress CoreWeave's pricing power and margins on new contracts and make its transition toward serving a broader enterprise client base even more difficult."

Google's move comes at a time when CoreWeave seeks to scale its AI cloud services to more than 5 gigawatts of AI computing processing by 2030, investing heavily to meet demand.

It won't be easy to unseat CoreWeave from its position in cloud AI services, but Google doesn't need to dominate the market for CoreWeave to be affected. Simply offering an alternative to CoreWeave could hurt the company's existing pricing power. That's especially problematic because CoreWeave has taken on significant debt to expand its business.

It's not time for Nvidia or CoreWeave investors to panic, but Google's new AI cloud company is something shareholders should certainly watch closely. Zooming out, the big picture is that the AI infrastructure space is becoming increasingly competitive, and companies are looking to reduce costs even as they build out more capacity.

And that means that the initial leads that some AI companies once had (and were expected to keep for years) are under threat like never before.

Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Nvidia. The Motley Fool has a disclosure policy.