crunch of the AI chips that followed the launch of LLMs like ChatGPT. On 18 May 2025, Nvidia launched DGX Cloud Lepton , a unified interface for accessing pooled GPU com­pute from various providers. 25 While this pools demand and offers access to blue-chip customers, it also erodes differen­tiation. This erodes margins and prevents the development of high-level, long-term business models. Although some critics focus on technical flaws(SemiAnalysis 2025), the real threat is the dumb-piping of competitors 26 , effectively turn­ing them into infrastructure utilities and blocking their path to higher value-added services. Although this is efficient for the market, this erodes the margins required to amortise expensive hardware. 3.4 Market structure challenges The niche markets are also suffering from oversaturation . In order to avoid directly competing with hyperscalers, Euro­pean alternative AI cloud providers often target the same market segment of sovereignty-minded customers in regu­lated enterprises that prefer European-hosted computing. 27 The demand in these AI cloud markets is substantially smaller than the broader AI compute market, with Equinix estimating the size of the non-hyperscaler AI-compute-as-a­service market at€12 bn euros by 2030(Tairych& Delp). This submarket is crowded in Europe, with several providers shar­ing the same tactic for competing in this space, pushing down margins. Lastly, the public AI factories and public-­private Gigafactories aim to provide compute essentially to this same segment, further saturating the finite demand. Alternative AI cloud providers are having to navigate an ecosystem where the incentives afforded to other players are structurally stacked against them. The AI-compute value chain consists of chip manufacturers, colocation pro­viders, compute providers, credit providers, end users and a plethora of alternative actors that provide financing, cool­ing solutions, energy and connectivity networks in this eco­system. These complex relationships and incentives create constraints in the alternative computation ecosystem. Colocation providers and data centre operators prefer hyperscalers as customers: based on our analysis of data­centerHawk data , hyperscalers enjoy on average an esti ­mated~25 % discount over wholesale customers and ~50 % over retail customers on the colocation prices in the European Union because of their role as preferred, stable long-term customers (see Figure 10) . End users, such as start-ups, prefer to use hyperscaler’s clouds because of the ubiquitous free compute credit programmes, the 25  The implication is also that this further centralises the market due to the software lock-in; pooling requires interoperability on the hardware level, which in practice will be challenging to achieve across different manufacturers. This might strengthen the existing position of the leaders. 26  https://en.wikipedia.org/wiki/Dumb_pipe. 27  For the parallel strategies of European AI firms active in the model layer, see Saari 2024. Average colocation pricing per customer type in European data centre locations 500 Figure 10 Prices per kW per month in USD 400 300 200 100 average retail Source: Data from datacenterHawk 22 Friedrich-Ebert-Stiftung e.V. average wholesale TYPE average hyperscale