Rackspace to collaborate with Dell and Nvidia amid generative AI pivot

INFRA

Cloud services provider Rackspace Technology Inc. is building up its momentum in generative artificial intelligence, forging a key partnership with Dell Technologies Inc. and Nvidia Corp. to offer customers access to the full-stack infrastructure, software and expertise needed to run advanced AI models.

The collaboration, announced today, is a part of the company’s Foundry for Generative AI by Rackspace, or FAIR initiative launched in June. With FAIR, Rackspace wants to provide all of the ingredients required to help customers build generative AI applications that run on-premises or in the cloud. Generative AI is the technology that powers conversational chatbots such as ChatGPT, and other AI models that generate images, videos and code.

Rackspace said FAIR will use Dell’s Validated Design for Generative AI with Nvidia, which is a combination of Dell’s server hardware and Nvidia’s AI software and graphics processing units, as the foundation for customer’s generative AI models. It provides access to the most powerful, AI-capable Dell PowerEdge servers, Nvidia’s latest DGX supercomputer platform, and essential software such as Nvidia AI Enterprise and Nvidia NeMo, a framework for training, customizing and deploying generative AI models.

Last year, Rackspace became a partner within Nvidia’s DGX-Ready Managed Services program, providing the expertise required to help customers get up and running with Nvidia DGX without any in-house infrastructure management. With Nvidia DGX, enterprises can access Nvidia’s most advanced H100 Tensor Core graphics processing units hosted in Rackspace data centers.

According to Rackspace, its collaboration with Dell and Nvidia provides customers with a simplified way to deploy and manage a private cloud infrastructure for generative AI projects. Customers will be able to deploy their private clouds within Rackspace’s own network of global data centers, or alternatively on-premises in their own data centers. The ability to spin up a private cloud for generative AI is likely to appeal, as there are many enterprises that have so far shied away from using the technology due to concerns around data privacy and security.

Rackspace Chief Product and Technology Officer Lance Weaver said FAIR makes it possible for companies to adopt generative AI in a simplified way with a proven architecture and access to multi-cloud AI expertise. “As AI continues to reshape industries and experiences, Rackspace is well positioned to create innovative solutions to help companies transform,” Weaver added.

Dell Infrastructure Solutions Group President Jeff Boudreau said customers will be able to perform workloads including AI training, Generative AI tuning and AI inference using a combination of the company’s servers, storage arrays and data protection portfolio. “Together, we are powering a new level of productivity to redefine how businesses work from customer engagement and content creation to software development and sales,” he said.

Can generative AI pivot spark growth for Rackspace?

Rackspace is betting big on generative AI at a crucial time, as it struggles to turn around a business that has stagnated in recent years. The company, which once competed with Amazon Web Services Inc. in the cloud infrastructure market, pivoted to offering managed services for its former rival’s cloud platforms, helping enterprises to design, build and operate complex application environments. Though that pivot initially sparked more growth at the company, in recent years it has struggled to gain more traction, sparking a “business realignment” that saw Amar Maletira replace former Chief Executive Kevin Jones last year.

Under Maletira, Rackspace is pivoting once again to take advantage of the huge opportunity presented by generative AI. Under the new FAIR program, Rackspace provides consulting services to help customers ideate actionable use cases for generative AI, as well as the expertise and now, the infrastructure required to bring those initiatives to life.

Holger Mueller of Constellation Research Inc. explained that Rackspace is trying to reinvent itself once again amid the growing push for generative AI applications. “On paper at least, this looks like it can be a win for everyone involved,” he said. “Customers get a badly needed generative AI platform without needing the expertise, Nvidia and Dell get more customers without ramping up services, and Rackspace may be able to generate revenue growth again.”

Rackspace will be hopeful that FAIR has an immediate impact on its fortunes, for the company’s existing business model continues to flounder. In its second-quarter earnings results posted today, it reported a net loss of $27.2 million in the quarter, improving only slightly from the $41 million net loss a year earlier.

The results did at least beat Wall Street’s expectations, though they were far from encouraging. The company reported a loss before certain costs such as stock compensation of six cents per share, ahead of Wall Street’s call for an eight-cent-per-share loss.

Revenue came to $746.3 million, beating Wall Street’s target of $731.2 million, but down 3% from a year earlier. Breaking down the numbers a bit, Rackspace’s public cloud segment delivered $435 million in sales, up 3%, while the private cloud unit made $311 million, down 11% from a year ago.

“Today’s numbers were disappointing,” Mueller said of the results. “But Rackspace was one of the earliest players to provide management services for the cloud and it became a market leader for some time, so investors will be hopeful it can imitate that success once again with generative AI.”

For the third quarter, Rackspace is forecasting sales of between $722 million and $732 million, the midpoint of which is below Wall Street’s forecast of $730.4 million.

Rackspace’s stock had gained more than 6% in the regular trading session amid advance optimism about its results, only to drop 2% after-hours.

Photo: Rackspace