- The hyperscalers still dominate the cloud market, but they haven't yet cornered sovereignty demand
- AI is driving a need for more sovereign cloud solutions and neocloud players have jumped at the opportunity
- The sovereign cloud market is expected to grow at a 36% CAGR over the next few years
You might think that Alphabet, Amazon and Microsoft have a stranglehold on the cloud market – and to an extent that’s true. But rising demand for sovereign cloud options to run AI workloads has created a much needed opening for small, new players to storm the market.
You’ve probably heard about neoclouds before – cloud players that sprang up to serve the niche compute needs of AI. These days, though, they’re not just catering to demand for GPUs but for compute resources in certain locations.
Why? It has to do with inferencing. Much of the value from inferencing comes from applying LLMs to sensitive and proprietary data held by enterprises and governments, Manish Gulyani, CMO for Network Infrastructure at Nokia, told Fierce. Those entities are wary of where that data is going and who has access to it.
While it’s true that the big three hyperscalers have their own sovereign offerings, enterprises don’t necessarily want to use them.
“There’s a big push to keep the data and the compute that’s used to process the data within the jurisdiction of the company or the government,” he said. “They don’t want the same scale. If I’m going to take a big model and tune or train it with my own data, I want that tuning to happen in an AI cluster that I can control.”
Nokia is a huge supplier of inter- and intra- data center networking kit. It works with the hyperscalers on down, Gulyani noted.
“Really what they’re saying is if you’re not comfortable giving it all over and you’re not ready to do it on your own premise, we can provide that infrastructure for you to host your own racks or rent to you on demand but with such strong separation of data such that the data’s not getting shared with anybody else,” he explained.
Disruption is coming
The trend Gulyani highlighted is backed up by research from 451 Research which indicates that some companies are choosing a different provider for their AI workloads than the cloud provider they use for their general purpose workloads.
By S&P Global Market Intelligence’s count, there are currently around 54 neoclouds, most of which are located in the U.S. and Europe. The largest of these is CoreWeave, but other players include the likes of Vultr, Crusoe, NScale, Lambda, Nebius, and more. Neoclouds received a whopping $10 billion in investments in 2024 alone, S&P’s Iuri Struta noted in a recent podcast.
And they’re all chasing a sizable market. Gartner tipped the sovereign cloud market to grow to $169 billion in 2028, up from $37 billion in 2024. It also predicted that half of multi-national companies will have digital sovereignty strategies by 2029, up from under 10% in 2025.
“There’s going to be a lot of disruption. Typically, disruption happens when there’s a massive change in both the architecture and the investment, and that’s what we’re seeing,” Gulyani concluded.