The neocloud segment has seen a five-year compound annual growth rate in revenue of 82 percent since 2021, according to JLL.

A recent report from the property consultancy firm, entitled "The rise of neocloud infrastructure" shows significant growth in the sector as competition for AI capacity has increased, along with access to GPU resources.

JLL notes that, outside of the well-established neoclouds such as CoreWeave, Nebius, and Crusoe, there are around 190 "distinct operators."

Among the segment's recent highlights listed are that S&P Global reported over $10 billion allocated to this sector last year, which JLL said is "indicating significant investment momentum," and that CoreWeave's stock has nearly tripled since its March IPO - though it should be noted that the stock is currently shorted at around 15.34 percent according to The Motley Fool.

JLL notes that neocloud providers benefit from the ability to choose locations with "optimal power resources and cost benefits," without having to stick to traditional hubs needed by the US hyperscalers. This ultimately makes the model more cost-effective, and speeds up deployment. Citing Uptime Institute analysis, neoclouds offer around a 6.6 percent cost reduction compared to hyperscalers.

“Demand for AI infrastructure is growing at an exceptional pace, and the global data center market has become capacity constrained. Neoclouds have developed an advantage over traditional cloud providers by moving faster and pricing lower with flexible terms. As AI shows no signs of slowing, its success will rely on accessibility to GPU infrastructure, which neoclouds specifically cater to,” said Andrew Batson, JLL head of data center research, AMER.

On the risk side of matters, however, JLL said that neocloud GPU contracts are typically shorter than traditional data center leases, typically sitting between two and five years, which creates a "critical mismatch with asset payback periods of 7-9 years." Rental rates for neoclouds are also driven up by the need for scarce high-power sites, with "enhanced power density capabilities and advanced networking systems," meaning neoclouds are competing with one another.

Finally, JLL stated that the "higher capital requirements and shorter lease terms substantially increase investment risk compared to traditional data center assets."

“Funding will be a major factor to translate the potential of neoclouds into a reality capable of handling the AI load. Building GPU infrastructure is capital-heavy, and investors should have a clear vision for delivering a viable business model and support from key clients before undertaking an entry into the neocloud space,” said Muhd Syafiq, director of data center research, Asia Pacific, JLL.

DCD did a deep dive into the financial viability of neoclouds in the recent AI Week Supplement. Read it here