There’s a calculation that every AI executive should know by heart, but most have never done: an on-premises GPU server costs roughly the same as six to nine months of renting equivalent cloud capacity.
Given that hardware typically runs for three to five years, the mathematics are stark, yet somehow this isn’t common knowledge in boardrooms making million-pound infrastructure decisions.
The issue stems from a fundamental mismatch between how we think about AI costs and how they actually accumulate. The operational expenditure over capital expenditure model feels intuitive when you pay as you go, scale as needed, and avoid big upfront commitments.
But AI workloads break these assumptions in ways that make traditional cloud economics misleading.
Director of SaaS and Infrastructure at Speechmatics.
What the cloud isn’t telling you
For example, renting a single NVIDIA H100 GPU instance from a hyperscaler cloud provider can cost around $8/hour, or over $5500 per month. Over 12 months, that’s upwards of $65,000.
By contrast, purchasing equivalent hardware outright might cost around $30,000 to $35,000, with three to five years of usable life. Add power, cooling, and maintenance and you still come out ahead after just 6 to 9 months of usage. Plus, you own the hardware so you don’t have to return it after 12 months.
But the pricing hierarchy is more complex than it appears. While neocloud providers like Fluidstack offer H100s at that $2/hour rate, hyperscalers charge closer to $8/hour, making the on-premises case even stronger.
The real-world comparison gets harder to ignore when you consider actual deployments: 8xH100 systems from Dell or Supermicro cost around $250,000, versus $825,000 for three years of equivalent hyperscaler capacity (even with reserved pricing). NVIDIA’s own DGX systems carry a punishing 50-100% markup over these already substantial prices.
The missing numbers in most AI budgeting conversations represent real savings, not theoretical ones. The problem compounds when you examine specific use cases.
Consider training runs. Most cloud providers only guarantee access to large GPU clusters if you reserve capacity for a year or more. If your training only needs two weeks, you’re still paying for the other 50.
Meanwhile, inference demands create their own mathematical puzzle. Token-based pricing for large language models means costs fluctuate with the unpredictability of the models themselves, making budget forecasting feel more like weather prediction than financial planning.
Elasticity, but with fine print
The cloud’s promise of elastic scale feels tailor-made for AI – until you realize that scale is constrained by quota limits, GPU availability, and cost unpredictability. What’s elastic in theory often requires pre-booking in practice and cash upfront to make costs acceptable.
And once your usage grows, discounts come with multi-year commitments that mirror the CapEx models cloud was meant to replace.
It’s not that the cloud isn’t scalable. It’s that the version of scale AI teams need (cost-efficient, high-throughput, burstable compute) isn’t always what’s on offer.
The irony runs deeper than pricing. Cloud providers market flexibility as their core value proposition, yet AI workloads, which are the most computationally demanding applications of our time, often require the least flexible arrangements.
Long-term reservations, capacity planning, and predictable baseline loads start to look suspiciously like the traditional IT procurement cycles cloud computing was supposed to eliminate. The revolution becomes circular.
Hidden costs, visible friction
The hidden complexity emerges in the details. Teams preparing for usage spikes often reserve more capacity than they use, paying for idle compute “just in case.”
Data migration between providers can consume non-trivial amounts of engineering time, representing an opportunity cost that rarely appears on infrastructure budgets but significantly impacts small, time-constrained teams.
These opportunity costs compound over time. When teams switch between cloud providers – driven by pricing changes, performance issues or compliance needs, they often face weeks of rewrites, re-optimizations, and revalidations.
It’s not just the IT infrastructure that changes, but all the code that manages it, internal expertise in that provider disappears and deployment pipeline needs to be rewritten. For lean teams, this can mean delayed product updates or missed go-to-market windows, which rarely get factored into the headline GPU bill.
Perhaps most surprisingly, the operational burden of managing on-premises infrastructure has been systematically overstated. Unless you’re operating at extreme scale, the complexity is entirely manageable through in-house expertise or through managed service providers.
The difference is that this complexity is visible and planned for, rather than hidden in monthly bills that fluctuate unpredictably.
From budgeting to strategy
Smart companies are increasingly adopting hybrid approaches that play to each infrastructure model’s strengths. They use owned hardware for predictable baseline loads like the steady-state inference that forms the backbone of their service.
Cloud resources handle the spikes: time-of-day variations, customer campaign surges, or experimental workloads where spot pricing can soften the blow.
Companies taking this approach have moved beyond anti-cloud thinking toward financially literate engineering.
The cloud remains invaluable for rapid experimentation, geographic scaling, and genuinely unpredictable workloads. But treating it as the default choice for all AI infrastructure ignores the mathematical reality of how these systems actually get used.
Companies getting this calculation right are doing more than saving money. They’re building more sustainable, predictable foundations for long-term innovation.
These conversations aren’t just technical, they’re strategic. CFOs may favor cloud for its clean OpEx line, while engineers feel the pain of FinOps teams desperately chasing them to delete resources as month-end cost spikes and poor support hit.
That disconnect can lead to infrastructure decisions driven more by accounting conventions than real performance or user experience. Organizations getting this right are the ones where finance and engineering sit at the same table, reviewing not just cost, but throughput, reliability, and long-term flexibility. In AI, aligning financial and technical truths is the real unlock.
Understanding these hidden mathematics won’t just help you budget better, it’ll make sure you’re building infrastructure that works the way AI actually does, freeing up headspace to focus on what matters most: building better, faster, and more resilient AI products.
We list the best IT management tool.
This article was produced as part of TechRadarPro’s Expert Insights channel where we feature the best and brightest minds in the technology industry today. The views expressed here are those of the author and are not necessarily those of TechRadarPro or Future plc. If you are interested in contributing find out more here: https://www.techradar.com/news/submit-your-story-to-techradar-pro
