Amazon buys Nvidia AI racks it can’t yet power, report says

Amazon Amazon.com, Inc. ↘ 4.57% has started taking ownership of Nvidia ↘ 4.40% AI server racks worth billions of dollars before some of its data centers have the electricity to run them. Business Insider reported on Tuesday, citing internal emails from August, that Amazon Web Services set up an "Early Rack Receipt" process. Under it, AWS expected to receive about $5 billion in Nvidia GB300 racks at U.S. facilities ahead of final deployment, and projected roughly $3 billion more each month "for the foreseeable future".businessinsider.com

The program shows the tradeoff hyperscalers now face. Locking in scarce GPUs early keeps them away from rivals, but the cash is spent before the hardware can earn any cloud revenue.

Racks waiting in warehouses

People familiar with the effort told Business Insider that some AWS sites had space for more racks but not enough power to switch them on. That left finished equipment staged at intermediary warehouses until the facilities were ready. One email said at least one AWS team had no "a clear forecasted path" for getting the incoming racks into data centers at the time.businessinsider.com

Under the old approach, AWS took ownership of a finished rack only when it reached a data center. The new process lets the company pay for and record certain racks earlier in the supply chain, according to internal documents. The outlet tied the practice to "dark GPUs," a term for AI chips that are bought but sit idle because of power shortages or other bottlenecks.businessinsider.com

An Amazon spokesperson said the company routinely stages finished hardware near deployment sites so it can be installed once capacity becomes available, calling this "best business practice." The spokesperson also disputed that the company as a whole lacked a path for getting racks into data centers.businessinsider.com

Pressure on cash flow

The report follows a Business Insider investigation published Monday, Oct. 19, on Amazon's plan to spend $220 billion on capital projects this year. In an internal recording from a September meeting, AWS CFO John Felton joked to infrastructure executive Prasad Kalyanaraman: "You've taken us free cash flow negative as a company, so congratulations." Kalyanaraman said Amazon's machine-learning and AI business is "hugely free cash flow negative." He added that he expects company-wide free cash flow to stay negative for "the next couple of years or so".businessinsider.com

Amazon's second-quarter results showed trailing 12-month free cash flow of negative $7.6 billion, compared with positive $18.2 billion a year earlier. The company attributed the swing mainly to a $66.1 billion increase in net equipment purchases, most of it for AI. Demand remains strong. AWS revenue grew about 37% in the quarter, and the company reports a contract backlog of roughly $496 billion.coinpaper.com+1

Betting on the payoff

CEO Andy Jassy has said Amazon has a "clear line of sight" to strong returns on its AI investments, calling the technology a "once in a lifetime opportunity." In his annual shareholder letter he wrote: "We've been through this cycle with the first big AWS growth wave, and liked the results. We expect to feel similarly about this next wave".businessinsider.com