Emerging Class Of AI Cloud Providers Projected To Reach $400B In Revenue

AI-specific cloud providers known as neoclouds have become the fastest-growing subsector in the booming data center landscape. A new report projects the sector's annual revenue will reach $400B by 2031. 

Neoclouds — AI infrastructure firms like CoreWeave that offer on-demand access to the graphics processing unit computing critical for artificial intelligence — posted 223% year-over-year revenue growth in the fourth quarter to reach $9B across the sector, according to new data from Synergy Research Group. 

This growth isn’t slowing anytime soon. Synergy projects the neocloud segment will sustain a 58% compound annual growth rate over the next five years, with the market growing to more than 15 times its current size, reaching $400B. 

Synergy Chief Analyst John Dinsdale said neocloud firms have grown from a small niche in the cloud ecosystem to increasingly take market share from tech giants like Amazon, Microsoft, Google and Oracle. 

“Some of them will fall by the wayside of course, but the burgeoning AI market will ensure that some carve out successful positions among the leading cloud providers,” Dinsdale wrote in an email to Bisnow. 

The report identifies CoreWeave, which is by far the sector’s most prominent player, as the firm most likely to pose a real threat to the hyperscalers.

Still, a growing number of GPU cloud providers are rapidly expanding, among them Crusoe, Nebius, Core Scientific, Nscale and Lambda. The neocloud ecosystem has around 190 smaller individual operators, according to JLL.

The growth of neoclouds is being driven by demand for AI computing infrastructure that traditional cloud providers have been unable to meet on their own. 

Not only are GPUs expensive and difficult to acquire, but they also require specialized data centers with advanced cooling systems capable of handling high power densities. Firms with AI computing needs that operate their own data centers or utilize colocation may not be able to support GPUs with their existing infrastructure.

The major hyperscalers also have their own GPU cloud products, but neoclouds have proven to be competitive due to faster speed to market and better pricing for many customers. 

According to Synergy, neoclouds’ faster deployments and more efficient scaling will continue to push customers toward this new segment as high-performance AI computing accounts for a larger and larger share of cloud demand. 

“What we are observing is not merely the emergence of a new class of cloud provider, but a deeper structural realignment in the architecture of computation itself,” Jeremy Duke, founder of Synergy Research Group, said in a written statement.