DigitalOcean, the cloud hosting business, today announced that it's agreed to acquire Paperspace, a New York-based cloud computing and AI development startup, for $111 million in cash.

DigitalOcean CEO Yancey Spruill says that Paperspace's infrastructure and tooling, once integrated with DigitalOcean's products, will enable customers to more easily test, develop and deploy AI applications. As for Paperspace customers, they'll benefit from DigitalOcean's cloud services, he says -- including databases, storage, app hosting, documentation, tutorials and a robust support system.

For now, Paperspace will remain a standalone business unit within DigitalOcean, and Paperspace customers won't see immediate changes to their service.

"We're excited to expand our portfolio tailored to the world’s small- and medium-sized (SMBs) businesses and startups with simplified AI and machine learning offerings," Spruill said in a press release. "The combined offerings allow customers to focus more on building applications and growing their businesses and less on the infrastructure powering them."

Paperspace was co-founded in 2014 by Daniel Kobran and Dillon Erb, graduates of the University of Michigan. Backed by Y Combinator and Jeff Carr, one of the co-founders of DigitalOcean, the company runs its own datacenters with custom-configured GPUs.

Paperspace initially focused on low-cost virtual machines, providing high-performance workstations for design, visualization and gaming in the cloud. But as AI entered the mainstream, Paperspace leaned hard into its AI offerings, launching a suite of tools designed for developing, training, deploying and hosting AI models in the cloud.

Prior to the acquisition, Paperspace raised $35 million from investors including Battery Ventures, Intel Capital, SineWave Ventures and Sorenson Capital.

Erb sees the acquisition as a step toward a comprehensive offering of cloud CPU and GPU compute to rival other vendors in the public cloud market. The combined power of DigitalOcean and Paperspace, he asserts, will let a new class of customer -- particularly those on a tight budget -- delve into AI- and machine learning-driven apps like generative media (e.g. OpenAI's DALL-E 2), large language models (e.g. ChatGPT), recommendation engines and image classifiers.