Start-up Vultr hits $3.5bn valuation in funding frenzy for AI cloud groups

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Data centre operator Vultr has raised $333mn of capital from investors including chipmaker AMD, scaling up its bet that companies looking to deploy artificial intelligence will seek alternatives to so-called “hyperscalers” such as Microsoft and Google parent Alphabet.

The fundraising, led by investment manager LuminArx, gives Vultr a valuation of $3.5bn, unusually high for a company that had not previously raised external equity capital. The average valuation for companies receiving first-time financing is $51mn, according to PitchBook.

Vultr runs a cloud computing platform on which customers can run applications and store data remotely. The 10-year-old company plans to use the funds to expand its data centre offering and purchase graphics processing units (GPUs), the AI chips that have quickly become the tech world’s hottest commodity.

Silicon Valley has embarked on a frenzy of investment in AI data centres powered by GPUs in order to develop large language models such as Google’s Gemini and OpenAI’s GPT.

The 10 biggest cloud companies — dubbed hyperscalers — are on track to allocate $326bn to capital expenditure in 2025, according to analysts at Morgan Stanley. While most depend heavily on chips made by Nvidia, large companies including Google, Amazon and Facebook are designing their own customised silicon to perform specialised tasks.

Away from the tech mega-caps, emerging “neocloud” companies such as Vultr, CoreWeave, Lambda Labs and Nebius have raised billions of dollars of debt and equity in the past year in a bet on the expanding power and computing needs of AI models.

Compared with Nvidia, AMD is a distant second in designing GPUs, part of a market for AI chips that Bank of America analysts estimates will be worth $276bn by 2027. AMD, run by Lisa Su, is planning to roll out a new chip, the MI355X, to compete with Nvidia’s Blackwell range, which went into mass production during the current quarter.

Vultr uses chips from both suppliers. Chief marketing officer Kevin Cochrane said the capital raising left the company with “freedom and flexibility” regarding its investment decisions, and added that AMD and LuminArx were “long-term strategic partners”.

The race to train sophisticated AI models has inspired the commissioning of increasingly large “supercomputers” that link up hundreds of thousands of high-performance chips. Elon Musk’s start-up xAI built its Colossus supercomputer in just three months and has pledged to increase it tenfold.

Meanwhile, Amazon is building a GPU cluster alongside Anthropic, developer of the Claude AI models. The ecommerce group has invested $8bn in Anthropic.

Vultr’s plan to expand its network of data centres, currently in 32 locations, is a bet that customers will seek greater proximity to their computing infrastructure as they move from training to “inference” — industry parlance for using models to perform calculations and make decisions.