Patel says neo clouds must scale massively, add software, accept real estate returns, or go bankrupt.
“you either have to go, like, really, really big, or you need to move into the software layer, or you just make commercial real estate, or you go bankrupt.”
Patel argues neo clouds with long-term enterprise and hyperscaler deals will succeed over on-demand providers.
“And so those are probably less likely to be able to succeed versus those who are locking in these massive deals with or long term deals that may not be massive but with enterprises or with AI labs, or with the hyperscalers who have no capacity because the demand is just so incredible.”
Patel distinguishes neo clouds between hyperscaler deals like CoreWeave and on-demand services like Lambda.
“There's other neo clouds who do a lot of on demand services. Right? Like Lambda. There's so there's a wide range of Neo Clouds.”
Patel questions whether neo clouds targeting developers on short-term rentals can achieve ROI.
“Those that are just targeting developers on short term rentals, they may not be able to get their ROI back.”
Patel states top neo clouds achieve 35-40% gross margins while many others are losing money.
“And this has enabled, you know, the top in the industry companies to have gross margins of 35, 40%. And now there's a ton of Neo Clouds that are losing money.”
Patel says neo clouds that ranked highest on ClusterMax benchmarks booked significantly more revenue.
“And since then we just released the second version, but in the middle, the clouds that ranked the highest actually ended up booking way, way, way more revenue.”
Patel reports five or six neo clouds have already gone out of business in just a few years.
“There's I believe five or six that have already gone out of business. It's only been a few years. Right. Right?”