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The hyperscalers' cloud businesses are minting cash, but neoclouds have been putting up jaw-dropping growth rates.
The article highlights the strong performance of the leading cloud infrastructure providers, often referred to as 'hyperscalers.' Amazon Web Services (AWS), the largest player in this sector, is a significant profit driver for its parent company, Amazon, contributing 59% of Amazon's operating income in Q1, with its revenue growing at a robust 28% – its fastest rate in nearly four years. Microsoft's Azure also demonstrates impressive growth, reporting a 40% expansion rate in its latest quarter, although specific profit figures are not disclosed. Google Cloud, while being the smallest of the three major players, boasts an even higher growth rate of 63%. This accelerated growth for Google Cloud is partly attributed to the strategic deployment and increasing external sales of its Tensor Processing Units (TPUs). TPUs are specialized computing units designed for deep learning and matrix mathematics workloads, offering a cost-effective alternative to general-purpose GPUs for specific AI tasks. The ability to deploy and sell these proprietary AI chips has allowed Alphabet's cloud division to significantly enhance its AI infrastructure capabilities and catch up in the competitive AI build-out. The consistent profitability of these three legacy cloud computing divisions underscores that cloud computing is a highly viable and lucrative standalone business model, generating substantial revenue and earnings for these tech giants.
This section introduces two agile newcomers, CoreWeave and Nebius, labeling them as 'neocloud' companies. These firms are highly specialized in providing cloud computing solutions tailored specifically for artificial intelligence workloads. Despite their relatively smaller scale compared to the hyperscalers, they have successfully attracted major technology players, including Microsoft and Meta Platforms, as clients. These large corporations, even with their own extensive data center capabilities, value the rapid access to additional, specialized computing power that CoreWeave and Nebius offer, without the need for internal infrastructure development. This strong demand has fueled extraordinary growth rates for these neoclouds. In the first quarter, CoreWeave recorded an astounding 112% year-over-year revenue increase, while Nebius reported an even more remarkable 684% revenue surge. Wall Street analysts maintain an optimistic outlook, projecting substantial revenue growth for CoreWeave at 147% for 2026 and 97% for 2027. Nebius is anticipated to grow even faster, with revenue growth estimates of approximately 551% for 2026 and 224% for 2027. However, a key characteristic and inherent risk of these rapidly expanding companies is their current lack of profitability. Both CoreWeave and Nebius are aggressively investing all available capital back into expanding their cloud infrastructure and capacity to meet escalating demand. This strategy, while crucial for capturing market share and scaling operations, means they are operating in the red. The article concludes by presenting these neocloud companies as potentially high-upside, albeit higher-risk, investment options for those seeking exposure to the AI boom, contrasting them with the more established and profitable legacy cloud providers.