Will Cloud Computing Stocks Keep Tanking?

Cloud computing stocks might be tanking, but analysts looking at both the short- and long-term don’t seem too concerned about the sector’s growth.

To that point, Synergy Research Group and IDC have new stats on the cloud computing market — and both firms’ findings indicate that, regardless of current disruption, Amazon Web Services, Microsoft Azure, Google Cloud and other similar providers will keep making gains, especially as artificial intelligence matures.

Starting with the Short-Term: A Look at Q2

The hyperscalers recently revealed their April-June earnings — and those cloud computing stocks have been taking a subsequent pummeling. Investors are expressing doubt around AI valuations (and how do you have effective AI without cloud computing?) and invoking specters of the dot-com crash.

Even so, Synergy Research credits the second quarter of 2024 as delivering another in a consecutive line of year-on-year cloud computing growth rates, thanks in large part to generative AI. AWS, Azure and Google Cloud each “have seen their growth rates increase substantially since mid-2023,” showing traction of 20% or more, analysts said on Aug. 1.

Indeed, Synergy Research said enterprises spent $14.1 billion more on cloud infrastructure services than they did the same time a year ago, for a total of $79 billion worldwide. That’s up 22%. 

Related:Brutal Day on Wall Street Raises 'AI Bubble' Concerns for Nvidia, More

“While some economic, currency and political headwinds remain, the fundamental strength of the market continues to push spending on cloud services to new highs,” analysts wrote. 

Of interest is that Synergy Research continues to position AWS as No. 1 globally, followed by Microsoft Azure and Google Cloud. Respectively, AWS posted a 32% growth in the second quarter, with Azure at 23% and Google Cloud at 12%, per analysts. The three hyperscalers now account for 74% of the overall public cloud computing market.

Among tier two providers, the highest growth rates came from Oracle, Huawei, Snowflake and MongoDB, Synergy Research said. In fact, analysts added, Oracle just surpassed IBM and is now tied with Salesforce as the fifth-largest cloud provider.

Cloud computing stocks for every single one of those companies (except for Huawei, which is privately held) remained down as the closing bell neared on Aug. 5.

The Long-Term View

As cloud computing stocks continue to struggle, then, channel partners might be cringing as they look ahead. 

But new figures from IDC could indicate that this Wall Street dip might be temporary as providers and investors adjust to new expectations around the AI craze. 

We say that because IDC predicts worldwide spending on public cloud services will hit the $805 billion mark this year — and double that number by 2028.

"Cloud now dominates tech spending across infrastructure, platforms and applications," said Eileen Smith, group vice president, Data & Analytics, at IDC, speaking to the report, "Worldwide Software and Public Cloud Services Spending Guide."

IDC's Eileen Smith

In fact, between now and 2028, the capital markets, life sciences and insurance segments will spend the most, most quickly, on cloud computing — with AI demand at the forefront.

And just in 2024, look for SaaS to capture more than 40% of that $805 billion outlay, with PaaS and IaaS each accounting for about 20%. Cloud computing providers’ AI platforms will see the fastest growth with a five-year CAGR of more than 51%, IDC found. 

Geographically, the United States continues to stand out as the world’s largest public cloud computing consumer. Western Europe trails, followed by APAC.

"Most organizations have adopted the public cloud as a cost-effective platform for hosting enterprise applications, and for developing and deploying customer-facing solutions,” Smith added. “Looking forward, the cloud model remains incredibly well positioned to serve customer needs for innovation in application development and deployment, including as data, artificial intelligence/machine learning and edge needs continue to define the forefront of innovation."

Hope for Cloud Computing Stocks?

Of course, cloud computing and AI chip providers may have to reset shareholders’ expectations somewhat, as the late-July/early-August selloff seems to be saying. 

Still, IDC expects industries such as banking, retail, media, capital markets and more to account for the bulk of cloud computing consumption over the coming years, particularly as they deploy AI platforms.

IDC's Andrea Minonne

"The rapid advancements in artificial intelligence are significantly driving the surge in cloud spending,” said Andrea Minonne, research manager, Data & Analytics, at IDC. “With organizations increasingly building, testing and deploying AI platforms, the growing interdependence between AI innovation and cloud infrastructure is positioning cloud services as the backbone of AI development and deployment.”