Cloud Infrastructure Delivers Strongest Revenue Growth in Q4 | Tech Crunch

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We've seen modest growth in the cloud infrastructure market over the past few quarters, with lower growth numbers than we've seen in the past. That changed this quarter due to interest in generative AI. A new revenue wave driven by the ChatGPT hype cycle started last year, but cloud infra revenue has already increased to $74 billion in the fourth quarter of 2023, up $12 billion from last year and $5.6 billion from Q3, the largest. According to Synergy Research, the cloud market experienced quarter-over-quarter growth.

The overall annual cloud infrastructure market is expected to grow from $212 billion to $270 billion in 2022. Although the market is maturing, the growth we've seen over the past year is here to stay, predicts Synergy's John Dinsdale. The law of large numbers is more effective. “Cloud is a huge market now and it will take a long time to move the needle, but AI has done so. Looking forward, the law of large numbers means that the cloud market will never return to the growth rates seen before 2022, but Synergy predicts that growth rates will now stabilize, resulting in huge annual increases in cloud spending.” will occur,” he said in a statement.

Jamin Ball, a partner at Altimeter Capital, sees a similarly bright future for these vendors, writing in his excellent Clouded Judgment newsletter:

Hyperscalers are really starting to see the tailwind of new workload growth outweigh the headwind of optimizations. Sometimes new workloads are related to AI. Sometimes they are classic cloud migrations. Hyperscalers benefit from massive scale, distribution, trust and depth of customer relationships that other software companies do not. They are also seeing the AI ​​revenue (computing more) show up sooner than anyone else.

Ball's data supports Dinsdale's arguments about declining growth rates, but in a much larger market, growth for growth's sake becomes a less important metric:

Image Credits: Jamin' Ball, Clouded Judgment, Altimeter Capital

For now, Microsoft's lucrative investment/partnership with OpenAI appears to be giving it an edge in the market, as the fourth quarter saw the company's market share grow by two full percentage points to 25%. Amazon is still king of the mountains with a 31% share, despite a two-point drop from last quarter. It's easy to say that Amazon's loss is Microsoft's gain, although it's not that simple and there may be very subtle effects across the market. Google, meanwhile, has held steady with a share of around 11%.

Synergy reports that the Big 3 account for 67% of the total market share, or roughly $50 billion in total cloud revenue from the three largest companies in a single quarter.

From a dollar perspective, the numbers are, as usual, a bit mind-boggling, with Amazon at $23 billion, Microsoft at $18.5 billion and Google at around $8 billion. If these numbers don't exactly match the reported numbers, these companies often combine different types of cloud revenue to arrive at the reported figures. Synergy looks at IaaS, PaaS and hosted private cloud services, and companies' reported cloud numbers may include SaaS and other revenue that Synergy doesn't account for.

Cloud infrastructure market share graph from Synergy Research

Image Credits: Synergy research

In terms of quarterly percentage growth, AWS grew 13%, Azure grew 30%, and Google Cloud grew nearly 25% (although they don't separate out SaaS revenue in that. No), given the caveats about how companies measure revenue.

One thing was clear last year, Microsoft was turning up the heat on Amazon, and perhaps for the first time with its aggressive deal with OpenAI, it left the company on its heels.

Scott Raney, a partner at Redpoint, told TechCrunch at Re:Invent in December that Amazon is clearly playing catch up when it comes to AI, and it's an unusual place for the company to find itself. “This may be the first time that people are looking and saying that Amazon is not in a pole position to take advantage of this huge opportunity. What Microsoft has done around CoPilot and the fact that Q comes out (this week) means that, of course, they're absolutely 100% playing catch-up,” Raney said at the time.

While generative AI represents a huge opportunity for all cloud vendors, it's still very early days. We always like to say that entry into the market is a huge advantage, and this has definitely been the case for Amazon these years. It's not yet clear whether Microsoft's aggressive approach to AI represents a similar benefit, but a market share increase of two percentage points in a single quarter is hard to ignore. Microsoft currently seems to be leading the way when it comes to AI in the enterprise, but Google and Amazon still have a lot of time left on the clock to figure it out.

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