CoreWeave (CRWV -6.75%), a provider of cloud-based AI infrastructure services, recently launched a new hands-on service called Physical AI Field Engineering. The company will send its own experts to work directly inside its engineering and manufacturing clients -- including auto, aerospace, and robotics companies -- and help them build physical AI applications.
Traditional AI software is easy to train as long as it deals with digital data, but producing physical products -- such as car parts, sensors, and rocket engines -- is messier because many data scientists don't understand physics and engineering. Most engineers also don't know how to build and train large language models (LLMs) for AI platforms.
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To close that gap, CoreWeave hires specialized engineers with backgrounds in data science and sends them to assist those companies. These "embedded" engineers will help CoreWeave's clients aggregate their physical data (from tests, sensors, and live feeds) to develop customized AI models for their physical products. By doing so, they ensure these AI models actually obey the laws of physics before they're integrated into the manufacturing process.
This new business could expand CoreWeave's total addressable market by reaching more manufacturing, robotics, and aerospace companies. It would also increase the stickiness of its ecosystem while expanding its higher-margin professional services business. However, this strategy could also generate tailwinds for Nvidia (NVDA -3.36%), the world's leading AI chipmaker.
NASDAQ: CRWV
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How could CoreWeave's strategy help Nvidia?
Nvidia owns about 11.5% of CoreWeave, making it one of the company's largest investors. Therefore, any strategy that expands CoreWeave's reach is good news for Nvidia.
CoreWeave is also one of Nvidia's largest customers. At the end of 2022, it operated only three data centers. Today, it operates 51 data centers across North America and Europe, and it's installed more than 250,000 of Nvidia's high-end GPUs in those servers. CoreWeave will need to buy even more GPUs from Nvidia as it gains more manufacturing customers.
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Most of Nvidia's sales still come from tech giants like Microsoft, Amazon, and Alphabet's Google. But with CoreWeave's Physical AI Field Engineering push, it can expand its total addressable market into physical industries. That expansion could also drive the increased adoption of Omniverse, Nvidia's software platform for creating physics-based digital twins and simulation services. Nvidia already locks in its AI customers with its proprietary CUDA (Compute Unified Device Architecture) platform and other software, so Omniverse clearly complements that strategy.
CoreWeave's Physical AI push won't immediately boost Nvidia's stock, which has already rallied nearly 20% over the past 12 months, but it makes it a more compelling long-term investment. It could also widen Nvidia's moat against its smaller, custom, and niche competitors.
