According to Now, the Syco boss "sees something very special" in the 'With Ur Love' singer, who was mentored by Cole on last year's X Factor.
"Simon knew that Cheryl had the potential to be a superstar," a source told the publication. "He helped her get there by making her an X Factor judge, which was when her solo career really took off.
"He also sees something very special in Cher. In fact, he thinks she could become even more famous and successful than Cheryl."
"It's early days, but he's delighted how things are going for Cher so far," the insider added.
Lloyd, whose debut album Sticks & Stones enters the charts this week, recently expressed her sadness over Cole not contacting her about her career.
> Digital Spy's Cher Lloyd interview: 'I won't let myself be a one-hit wonder'
> Cher Lloyd: "I had to realise that my attitude stank"
Watch a behind-the-scenes featurette from Cher Lloyd's 'With Ur Love' music video below: