My interest in GPUs began in 2023 when Nvidia unveiled plans for the Blackwell chip. I was struck by reports that each new chip was slashing inference costs by up to 30x. I recalled a key insight from Andy Grove’s Only the Paranoid Survive, where he described the exponential decline of Intel’s memory business due to disruptive technological shifts.
I was curious about how this leap in computing power is going to affect my business. I was shocked to learn that one of the largest players in electronic FX trading (a hedge fund called XTX) had the biggest private cloud usage of A100s in the world (according to this report in 2023). Back then, no one I knew was using it in trading. I dug further and discovered other secretive hedgefunds – the likes of TGS investments, constructing massive 500,000 sqft data centers.
But why build when you can rent?
Neoclouds are GPU-based infrastructure tailored for AI and ML. Similar to the production of traditional cars vs electric cars (Toyota vs Tesla), traditional hyperscalers (AWS) and neoclouds are built differently from the bottom up. Traditional hyperscalers, however, has a big edge in financing.
Interestingly, the business is more fragmented than I initially thought, with different companies pursuing different strategies. Unlike direct competitors in the software side (Windsurf vs Cursor), different clients of the infrastructure business are willing to accept certain trade-offs - whether it's premium pricing in exchange for a single tenant offering, or preference on the software stack.
One of my favourite resources to learn more about this industry is semianalysis.com
According to Dylan & team, there are nine major factors differentiating the best cloud providers, ranging from:
2. Lifecycle and Technical Expertise
3. Slurm and Kubernetes Offerings
4. Reliability/SLA
5. NCCL/RCCL Networking Performance
6. Storage
7. Active/Passive Health Checks and Monitoring
8. Pricing and Consumption Model
9. Technical Partnerships
It's more complicated than you think
Building a world-class Neo Cloud is more complicated than you think. It’s not a simple act of combining GPU, networking them and supplying power. It’s an extremely complicated system with hundreds and thousands of potential failures for a single workload, and the pioneers have placed automated systems and active burn-ins to provide better customer service. The software stack is increasingly integral to the success of cloud architecture. The Neocloud business is rapidly expanding, with the total addressable market projected to increase from $33 billion in 2023 to $260 billion by 2030.*The neocloud business is rapidly growing, with total addressable market is set to grow from 33bn (2023) to 260bn (2030)*.
Booms and Busts
Technological revolutions often spark economic booms, but history shows that they can also lead to devastating busts when optimism outpaces fundamentals. The mobile and cloud computing waves of the 2000s and 2010s drove sustained growth without major collapses, thanks to measured scaling and broad market adoption. In contrast, the dot-com and telecom crash of 2000-2002 serves as a stark warning for industries reliant on heavy financing and infrastructure.
There are two historical busts that I think we can identify critical lessons from. First is overcapacity in servers and fiber-optics in the 1990s. Companies like Global Crossing and WorldCom overbuilt fiber optic networks, anticipating demand that never fully materialised. By 2001, only 5% of the laid fibers was operational, leading to plummeting prices.
Second is the collapse of Japanese semiconductor manufacturers after the introduction of the 1985 Plaza Accord. This agreement, aimed at correcting trade balances, strengthened the Japanese yen, making exports costlier. By the 1990s, Japan’s global share of semiconductors dropped from over 50% to 20%.
The AI boom holds a transformative potential, but history warns against unchecked optimism. Leading neo cloud providers l are proactively mitigating risks through strategic measures: “take or pay” contracts ensure revenue stability, while partnerships with deep-pocketed clients and well-funded AI startups reduce exposure to customer defaults. By combining long-term optimism and short-term paranoia, leading neo clouds can position themselves to avoid the pitfalls of the past tech wave.
* Source: Nebius Group