What happened
Shares of Cloudflare (NET +1.71%) were up 7% as of 3:33 p.m. ET on Wednesday following several partnership announcements in the burgeoning market for artificial intelligence (AI) technology.
Cloudflare said it is teaming up with Microsoft to allow businesses to use AI models across devices, network edge, and cloud environments. This will allow companies to run AI where it's needed most and, therefore, squeeze the most speed and efficiency out of an application.
The company made several other announcements today. However, the one that got the most attention was that Cloudflare will deploy Nvidia's graphics processing units (GPUs) and ethernet switches at the edge across its global network. This will allow Cloudflare customers to run AI workloads at scale without up-front costs, which could spell more demand for the leading network cloud company.
NYSE: NET
Key Data Points
So what
Cloudflare is the leading global network in terms of internet traffic. It's estimated that 18% of all websites use the service, according to W3Tech data. By offering Nvidia GPUs to power its global network of data centers, the company is basically communicating to investors that it will be positioned to ride this huge spending curve on AI technology.
Offering AI capabilities to its customers was already driving demand for Cloudflare. It announced a new deal with a fast-growing generative AI start-up in the second-quarter earnings report. Cloudflare believes it is the most widely used cloud provider among leading AI start-ups.
Now what
The Nvidia partnership could accelerate the number of deals with AI start-ups and cement Cloudflare's platform as the go-to for these cutting-edge companies. More importantly, Cloudflare is addressing the GPU scarcity with the Nvidia partnership.
Any organization will be able to use AI models through Cloudflare's platform without having to manage or buy expensive GPUs themselves. This should boost demand for the company's cloud service.
Analysts currently see the company on track to report revenue growth of 32% this year, down from the 44% rate in 2022. AI demand could spark new life for this beaten-down tech stock.
