AI-driven turbulence and neoclouds reshape the 2026 cloud landscape

The cloud industry faces unprecedented upheaval in 2026, as AI demands accelerate, legacy infrastructure falters, and innovative smaller providers, dubbed ‘neoclouds’, challenge hyperscalers’ dominance amid rising outages and enterprise shifts towards private AI solutions.

As cloud computing continues to evolve rapidly, the industry faces significant challenges and transformations that will shape the landscape in 2026. According to Forrester’s recent Predictions 2026 report, the cloud sector is poised to experience substantial turbulence stemming from the race among hyperscalers to establish AI-native cloud infrastructure and the concurrent enterprise push to develop substantive AI strategies. This dual dynamic is expected to generate at least two major multiday cloud outages next year, underscoring the increasing fragility of existing infrastructure and the complexities of the AI transition.

The cloud’s longstanding promise of always-available services was notably undermined in 2025 by high-profile outages affecting giants like Amazon Web Services (AWS) and Microsoft Azure. These disruptions impacted critical services across industries and regions, pointing to vulnerabilities as hyperscalers shift investment away from traditional x86 and ARM data centre architectures towards GPU-centric systems optimised for AI workloads. This shift, driven by growing AI demands, is straining legacy infrastructure, which is unable to cope smoothly with increasing complexity. The fallout from such transitions is anticipated to include new operational risks and prolonged outages that will challenge customer confidence. In reaction, major cloud clients are likely to exert pressure on providers for infrastructure renovations aimed at reducing risk and improving resilience.

Alongside infrastructure concerns, there is a growing trend among enterprises to reclaim control over their AI initiatives. In response to escalating AI operational costs, data lock-in issues, and overall cloud complexity, at least 15% of enterprises are projected to deploy private AI models on private clouds in 2026. This shift is partially driven by corporate data protection needs and recent platform access changes like Salesforce’s decision to close third-party access to the Slack API. Such moves restrict enterprises from leveraging Slack data outside Salesforce’s ecosystem, further incentivising private cloud AI deployments for data sovereignty and operational control.

The cloud ecosystem’s evolving nature is also catalysing the rise of so-called “neoclouds,” which are smaller, GPU-first cloud providers specialising in AI infrastructure. Companies like CoreWeave, Lambda, and Nebius, supported by key players such as NVIDIA and venture capitalists, are aggressively expanding globally. These neoclouds offer a combination of open-source AI models, orchestration tools, and sovereign AI capabilities tailored to enterprise needs. Forecasts suggest neoclouds will generate approximately $20 billion in revenue in 2026, rapidly eroding the hyperscalers’ market dominance in the Generative AI space. The growth of neoclouds is expected to triple and expand regionally across Europe and Asia, compelling traditional hyperscalers to rethink their AI strategies to stay competitive.

The challenges stemming from 2025’s outages remain fresh. For example, AWS and Google collaborated on a multicloud networking service launched recently to offer faster, more reliable connectivity, enabling private, high-speed connections between AWS and Google Cloud within minutes. This initiative directly addresses performance and resilience issues underscored by an October 2025 AWS outage, which disrupted major platforms including Snapchat and Reddit and caused losses estimated between $500 million and $650 million for U.S. businesses.

AWS has also responded by introducing an ‘Accelerated Recovery’ feature for its Route 53 DNS service to improve resilience against outages. This feature aims to ensure customers maintain public DNS management capabilities even during regional disruptions, targeting a 60-minute recovery time objective. Earlier in 2025, Microsoft faced a significant Azure outage caused by a configuration change in its Azure Front Door service, which affected access to applications like Office 365 and Xbox Live, impacting enterprise clients such as Costco and Starbucks.

Further internet infrastructure issues in 2025, like the submarine cable cuts in the Red Sea, highlighted the vulnerability of cloud connectivity, especially for Azure users relying on key undersea cables to connect Europe, Asia, and the Middle East. These physical disruptions caused increased latency and degraded cloud performance across several regions, with repairs complicated by geopolitical sensitivities.

More recently, Cloudflare, a major web infrastructure provider, experienced a major service disruption impacting prominent services like X (formerly Twitter), ChatGPT, Canva, and Grindr. This outage emphasized the interconnected risks facing the internet’s backbone and raised awareness about the importance of diversified and resilient cloud strategies.

Taken together, these developments paint a picture of an industry at a crossroads , grappling with growing AI-driven demand, the need for robust private cloud solutions to safeguard enterprise data, and the emergence of innovative market players challenging the hyperscale status quo. The ongoing fragility of legacy infrastructure juxtaposed with AI-native innovation promises a cloud computing environment in 2026 that is both dynamic and fraught with operational complexities.

📌 Reference Map:

• ^[1] (CDOTrends) – Paragraphs 1, 2, 3, 4, 5, 8, 9, 10
• ^[2] (CDOTrends summary) – Paragraphs 1, 2, 3
• ^[3] (Reuters) – Paragraph 6
• ^[4] (ITPro) – Paragraph 7
• ^[6] (AP News) – Paragraph 8
• ^[7] (Tom’s Hardware) – Paragraph 9
• ^[5] (Reuters) – Paragraph 10

Source: Fuse Wire