I would recommend doing both. There are significant advantages of moving some of the development/test tools out to the cloud. However, it should only go as far as development and perhaps first stage testing which is probably what your CTO has in mind.
There's no reason why each development project has to pay for the physical space taken up by *shared* development tooling such as Jenkins, Common Git Repository, JIRA/Redmine/Trac and some database and application server that is used for functional testing.
However, a proof of concept system must be present locally even if it is a limited capacity otherwise you'd be wasting a lot of bandwidth going back and forth.
It would also help to design your application architecture so that you can theoretically run everything on a laptop (and provide a powerful laptop to do it). For the developers.
If your'e an IBM shop, you may want to look at JazzHub to manage things for you.