Edge computing is a type of cloud computing that makes the internet faster by moving content like websites and applications closer to the end user. As more devices connect to the internet, creating more data at "the edge," edge computing offers a means to improve internet performance by reducing the distance data must travel. It also reduces data center costs for enterprises, and both of those benefits should drive adoption in the coming years.
Earlier this month, Cloudflare (NET 3.58%) announced a partnership with NVIDIA (NVDA 4.28%) that will bring artificial intelligence capabilities to its edge platform. While Cloudflare is not the first cloud services provider to offer this benefit, the partnership could still drive growth for both companies. Here's what investors should know.
The benefit for Cloudflare
Cloudflare's edge platform is a constellation of data centers spread across more than 200 cities worldwide. The company uses this vast network to secure and accelerate the delivery of websites, applications, and computer code. This creates a better experience for end users, and it eliminates the cost and complexity of maintaining onsite hardware for clients.
Notably, Cloudflare Workers is a serverless computing platform that allows developers to build complex applications at the network edge. This latest partnership will further empower developers, bringing NVIDIA's best-in-class graphics processing units (GPUs) and AI solutions to Cloudflare Workers.
Put simply, developers using Cloudflare Workers will now be able to build and deploy AI-powered applications using NVIDIA's tools. For example, frameworks like NVIDIA Metropolis support the development of software for smart cities, smart retail, and smart manufacturing. NVIDIA Clara supports accelerated drug discovery, genome analysis, and smart hospitals. And NVIDIA Isaac powers the design of applications for autonomous robots.
Prior to this partnership, according to the company, Cloudflare's platform was already faster and up to 75% cheaper than serverless solutions like Amazon Web Services' (AWS) Lambda. Now, powered by NVIDIA's cutting edge computing platform, Cloudflare Workers offers even more value to clients.
Last year, Cloudflare's paying customer base grew 32% and revenue reached $431 million, up 50% from the previous year. But that figure doesn't come close to cloud titans like AWS, which generated over $45 billion in revenue last year. That's what makes this partnership important -- it should improve Cloudflare's ability to compete with larger rivals that already support NVIDIA's AI solutions at the edge, and it gives the company an advantage over rivals like Fastly that don't offer that support.
The benefit for NVIDIA
NVIDIA's GPUs and AI solutions are already widely adopted across all major public clouds, and that demand has translated into strong growth for the chipmaker. Last year, data center sales reached $6.7 billion, up 124% from the prior year.
However, NVIDIA's computing platform is now gaining traction with new customers at the edge. That's important, because management values the edge AI market at $15 billion by 2024. This partnership should help NVIDIA capture a bigger piece of that pie, driving continued growth in its data center business.
This new deal could also pressure Cloudflare rivals to adopt NVIDIA technology at the edge, especially if this partnership becomes a major selling point for Cloudflare or supercharges the company's financial performance in some way. Right now, this is just speculation, but investors should pay attention to the situation.
The opportunity is worth the risk
Investors should note that Cloudflare is not currently profitable, and the stock trades at a pricey 53 times sales. NVIDIA stock isn't exactly cheap, either. It trades at 22 times sales. That means these investments lean toward the risky side of the spectrum.
Even so, Cloudflare and NVIDIA are growing quickly and both have big market opportunities. Moreover, this partnership should be a tailwind for both companies. That's why I think it's worth picking up a few shares of these tech stocks.