Thanks to Gen AI, Cloud Computing Market ‘Gets Its Mojo Back'

Fueled by generative AI deployments, the cloud computing market, which suffered some significant dips in 2023, has rebounded beyond analysts’ expectations.

In fact, based on analysis of fourth-quarter earnings, Synergy Research Group predicts “huge ongoing annual increases” in cloud spending. To that point, the firm forecasts annual outlay to reach $500 billion soon.

“Cloud is now a massive market and it takes a lot to move the needle, but AI has done just that,” analysts wrote.

Looking ahead, the law of large numbers means that the cloud market will never return to the growth rates seen prior to 2022, but Synergy does forecast that growth rates will now stabilize, resulting in huge ongoing annual increases in cloud spending.

It helps that economic, currency and political headwinds “have diminished somewhat,” they added. But the technologies and services around generative AI are the real fire fueling cloud computing demand, they said. 

Public Cloud King AWS’ Market Share Drops Slightly

In terms of leaders, Google Cloud and Microsoft showed stronger year-on-year growth, with the latter increasing its worldwide market share by almost two percentage points, reaching 24%, Synergy found. Google Cloud’s traction, meanwhile, also grew, achieving 11% worldwide market share in the fourth quarter, according to Synergy. That’s about a percentage point higher compared to the same period a year earlier.

The big surprise comes for longtime public cloud king Amazon Web Services, whose market share dropped slightly to 31%, per Synergy’s assessments. That reduction came even as AWS maintained double-digit growth rates. Synergy did not indicate what trends may have contributed to AWS’ somewhat reduced traction.

Combined, the three hyperscalers hold 67% global market share, according to Synergy’s calculations. When considering just public cloud services, they have 73% market share, per analysts.

Among tier-two cloud providers, Huawei, China Telecom, Snowflake, MongoDB, Oracle and VMware delivered the highest year-on-year growth. 

Cloud Computing by the Numbers

Overall, when including infrastructure, platform and hosted private cloud services, Synergy estimates that fourth-quarter revenue totaled almost $74 billion. For all of 2023, cloud computing revenue came to $270 billion, propelled by public infrastructure and platform cloud services. Those grew 21% in just the fourth quarter.

By geography, Asia Pacific showed the strongest growth, Synergy said. India, China, Australia and Japan all are adopting cloud computing at a rate of 20% or more year-over-year. The United States remains the largest cloud market “by far,” Synergy said. Its scale surpasses all of APAC. In the fourth quarter, U.S. cloud computing demand rose by 16%.

All in all, Synergy’s evaluation of fourth-quarter cloud infrastructure services numbers shows that enterprise spent close to $74 billion worldwide, up by more than $12 billion from the fourth quarter of 2022. The year-on-year growth rate totaled 20% in the three months ending Dec. 31, markedly higher than the previous three quarters, Synergy said. 

“Notably,” analysts said, “the market grew by $5.6 billion from Q3. That is by far the largest quarter-on-quarter increase ever achieved. For the year as a whole, the market grew 19% from 2022.”