Didnt Gaikai entereted into cooperation with Nvidia and used their "Grid" GPU servers for compression? I remember reading article about that. In related news, Nvidia will release this "ShadowPlay" functionality to 6xx and 7xx card users in the summer. It will feature automatic background recording of video AND compressing to H264 without any FPS drop during gaming.
I think DF's Gaikai vs OnLive article mentioned that Gaikai ran x264 on Intel CPU. I didn't verify the info. May be they switched ?
In any case, it's hardware encoded now on PS4.