Neocloud providers leverage the AI frenzy

Neocloud providers are companies that offer cloud computing services specifically tailored for AI applications.

They focus on providing access to high-performance computing resources, particularly Graphics Processing Units (GPUs), which are essential for running complex AI workloads. The neocloud concept has emerged relatively recently, coinciding with the rapid advancements in AI technologies and the growing need for specialised computing resources.

Neocloud pioneers

CoreWeave was one of the pioneers, although other companies such as Lambda Labs, Crusoe and Nebius have also followed suit.

Traditional large cloud computing companies such as AWS, Azure and Google have also joined the trend and are now offering “GPU as a service”, as well as telcos such as Orange Business and other. Unlike traditional cloud providers, neocloud providers often operate in a niche market, catering to businesses that require substantial computational power without necessarily relying on the massive infrastructure of larger hyperscalers like Amazon Web Services (AWS) or Google Cloud.

Like many segments in the AI race, the market for neocloud providers is fiercely competitive and presents with several significant challenges. Many of these providers are heavily reliant on investor funding to sustain their operations, as they have yet to achieve profitability.

A crowded environment

The environment is crowded with competitors ranging from startups to established System Integrators (SIs), telecommunications companies (telcos), and Managed Security Service Providers (MSSPs), all offering similar capabilities, often as an extension of their core services.

This was the case of data centre startup CoreWeave which suffered many problems when it initially went public, with an IPO initially estimated to reach up to $32bn, going down to $23bn in the days prior to its stock market debut.

In the same way as other neoclouds, CoreWeave rents out computing power to big tech companies building out large language models (LLMs). The company relies heavily on two major customers: Microsoft and OpenAI. The latter, alongside Nvidia, is a stakeholder in CoreWeave.

It also leases computing power to Meta and IBM. CoreWeave’s stratospheric levels of debt were behind these problems and signal a major challenge affecting all competitors in this niche market.

Neocloud challenges

Neocloud providers face challenges related to the availability of GPUs and other critical components, which are subject to global supply chain fluctuations.

This has created an asymmetry between supply and contractual obligations, making it essential for providers to secure data centre space, power, and cooling capabilities suitable for AI operations. It is a market that has seen significant investment activity, including major funding rounds and IPOs. But it faces up to the headwinds typical of the high end of the AI market.

GlobalData analyst Beatriz Valle commented: “The AI revolution caught the hyperscale community somehow by surprise. The AI market continues to power ahead, with demand outstripping many original projections in spite of the numerous forecasts of doom and gloom. GlobalData estimates the overall AI market will see a 35% increase in 2025 over 2024, with a compound annual growth rate of 41% from 2023 to 2028. In Q1 2025, a GlobalData survey found 73% of respondents believed AI to be the most disruptive technology to their industry, above cyber security, and consistent with previous quarters and even years. However, when it comes to the neocloud trend, it really is, in essence, a relatively pointless term for AI GPU rental companies that popped up like mushrooms after the rain, and will likely shrivel up and die in the unrelenting sun of competition.”

Neocloud providers play a critical role in the evolving cloud computing landscape, particularly as partners and competitors to larger hyperscalers. However, they face unique challenges related to investment dependence, supply chain vulnerabilities, and market competition. As the demand for AI capabilities continues to grow, the neocloud sector is poised for further development and potential consolidation.

"Neocloud providers leverage the AI frenzy" was originally created and published by Verdict, a GlobalData owned brand.

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