Rent-a-GPU neoclouds need to adapt or die

"Neocloud operators, or GPU-as-a-service providers, sprang up to take advantage of the huge demand for compute using GPU accelerators for AI. Many customers were forced to rent the chips because they were unable to secure their own supply. But this business model is fragile, according to consultants McKinsey & Company, because it is inherently commoditized. There is limited differentiation in renting out access to specific hardware - typically Nvidia products - and price-driven competition can be fierce."

"Investors backing neoclouds such as CoreWeave, Nebius (both publicly traded), and Crusoe (privately held), are betting that the companies will be able to transition to offering services built on their AI infrastructure instead. Such platforms would comprise training tools, inferencing services, and domain-specific stacks for particular industries such as financial services. Moving up the software stack like this will put them directly against the hyperscalers that have come to be their biggest customers, and will also require considerable time and resources to develop."

"New Jersey-based CoreWeave is one of the larger neocloud operators, and 77 percent of its revenue came from just two customers during 2024. Microsoft accounted for 62 percent, and Nvidia was understood to make up a large chunk of the rest. In its Q2 results released in August, the firm reported revenues of $1.21 billion, up an impressive 207 percent year-on-year - but it also recorded a net loss of $290.5 million"

Neocloud operators emerged to rent GPU accelerators to meet surging AI compute demand when customers could not secure chip supply. The GPU-as-a-service business is fragile because renting access to specific hardware—mostly Nvidia—offers limited differentiation and invites price-driven competition. Investors in CoreWeave, Nebius and Crusoe expect a shift toward software and services built on AI infrastructure, including training, inference and industry-specific stacks. Moving up the stack would put neoclouds in direct competition with hyperscale cloud customers and requires significant development time and capital. CoreWeave’s concentrated customer base, rapid revenue growth, heavy capex and net losses illustrate the financial risk.

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