Alibaba and Tencent clouds see demand for CPUs level off, GPUs accelerate

Demand for cloudy CPUs has levelled out at top Chinese clouds Alibaba and Tencent, whose customers increasingly want GPUs instead.

Both businesses released quarterly results last week. Alibaba Cloud posted six percent year-over-year revenue growth to deliver $3.64 billion for the quarter. Tencent doesn't break out numbers for its hyperscale operation, but attributed growing demand for cloud as a reason its Business Services line item delivered year-over-year growth in the "teens."

Tencent chief strategy officer James Mitchell told investors the rent-a-GPU business is booming – but modestly compared to the US market, as China has fewer well-funded AI startups. Local AI outfits, he observed, may have $1 billion or $2 billion capital, compared to US startups that could have between $10 billion and $90 billion in the kitty.

Mitchell said "percentage growth rates are very fast" for GPU rental, but admitted that's partly because of a low base rate of business. "Some of that demand for renting GPUs in the cloud is incremental, some of it is replacing demands that would otherwise have existed anyway for renting CPUs in the cloud," he added. "And so, while the business in a GPU provision is doing very well, the business of CPU processing is more flat because the incremental demand is for GPU, not CPU."

Alibaba Cloud offered investors similar analysis.

"There's very, very robust demand among our customers for AI and AI-relevant products," CEO Eddie Wu told investors, adding that "that demand is still far from being satisfied."

Wu predicted double-digit growth for Alibaba Cloud in in the second half of 2024 and noted "probably most of that growth will be driven by AI products."

"If you look at the industry as a whole, demand for CPU-based traditional cloud computing is relatively limited, where most of the growth is now focused on GPU-based AI product development," the CEO added.

Neither Chinese cloud mentioned difficulties obtaining GPUs.

• Tencent Cloud's home-grown traffic-tamer halves WAN latency
• Is Lenovo a blind spot in US anti-China security measures?
• Alibaba Cloud reveals its datacenter design, homebrew network used for LLM training
• Small datacenters face the axe under China's new energy policy

Nor did Lenovo in its quarterly earnings call, which saw its Infrastructure Solutions Group (ISG) post record revenue of $3.2 billion – up 65 percent year-on-year – thanks in part to AI creating demand for both conventional servers and GPU-equipped machines.

Investors were told of "buoyant investments in AI infrastructure and an improved supply of AI GPUs" helping Lenovo to grow.

Profit remained elusive, though: ISG posted a $37 million loss, which was at least better than the $60.4 million of red ink from the same quarter last year and the $97 million loss last quarter. On the earnings call, financial analysts were keen to understand how a 65 percent revenue jump didn't result in a profit.

ISG senior vice president Vladimir Rozanovich promised "deeper engagement with that customer base to drive further profit enhancement for ISG."

"But we're also going to optimize our business model, continuing to look at improvements in simplifying portfolio, improving operations, and making sure that we are putting the right R&D into our portfolio to ensure we are ready for this hybrid AI era," he added.

Which sounds like jobs and/or products could be on the chopping block.

Lenovo was in good health overall. Q1 revenue of $15.45 billion represented 20 percent year-on-year growth, and the company's overall $859.6 million profit was a jump from the $643.1 million recorded in the same period last year. ®