Think larger - that is, governments. You simply cannot have people just typing whatever they want willy-nilly into cloud-based LLM's. For anything other than fully unclassified (and that is a lot - for any country) that must be done on-prem.
There are also other reasons to host LLM's locally. That is systems that leverage contextual reasoning power of LLMs, but are unable to readily access the internet. A planetary rover (e.g. Mars), for example.