- Cloud providers are weighing a more cautious Middle East expansion, while enterprises revisit single-region deployments in favour of geographically diverse architectures despite data residency goals.
Cloud revenues are surging as demand for compute and storage to power AI applications accelerates, prompting hyperscalers to expand data centre footprints even as geopolitical risks darken the near-term outlook, according to GlobalData’s “Cloud Watch Q1 2026: AI Drives Expansion, but the Economic Fallout from a Stormy Geopolitical Climate Could Disrupt Growth.”
GlobalData says most hyperscalers are ramping capex tied to AI. AWS’s 2026 investment is expected to reach about $200billion, more than 50 per cent over the previous year while Google is expected to reach $185 billion, focusing on Tensor Processing Unit (TPU) and Graphic Processing Unit (GPU) solutions..
“Sky-high expectations for AI, amid concerns about whether returns will be sufficient, raise questions about whether the AI bubble is bursting,” said Amy DeCarlo, Principal Analyst at GlobalData.
“At the same time, IT teams worry about threat actors leveraging AI to overwhelm security—any of which could dampen demand for processing, storage, and connectivity.”
Cautious approach
The war in Iran is compounding pressures beyond higher energy costs. Following US and Israeli strikes in February, AWS infrastructure in the UAE and Bahrain was hit by Iranian drones, triggering regional cloud disruptions across payments and supply chains. AWS waived all March charges for the ME-CENTRAL-1 (UAE) region.
Iran vowed to target data centres as “enemy technology infrastructure.” With facilities in an active conflict zone, providers are weighing a more cautious Middle East expansion, while enterprises revisit single-region deployments in favour of geographically diverse architectures despite data residency goals.
Rising geopolitical tensions among the US, China, and Russia, coupled with surveillance fears, are accelerating interest in sovereign cloud solutions to ensure in-region data residency. AI considerations are intensifying scrutiny of providers’ national affiliations and access to high-value data.
Security remains a core differentiator. Hyperscalers continue organic investment and M&A; in March, Google closed its $32 billion acquisition of security platform Wiz. “While early in cloud adoption many questioned providers’ security, confidence has grown, and many IT leaders now see hyperscalers as offering stronger protections than on-premises,” DeCarlo said.