Three of Wall Street’s heavyweight technology firms have reported better-than-expected sales at their cloud computing units in recent days, as interest in artificial intelligence drives a rebound in spending by corporate customers.
Growth in the US$270-billion cloud infrastructure market, a cash engine for Amazon.com, Microsoft and Google, gives the clearest sign yet that AI investment is bearing fruit after investors drove those stocks to record highs, thanks to optimism about the emerging technology.
Many big customers have started spending again on cloud computing after pausing last year to cut costs, executives and analysts said.
Amazon, the last of trio to report on Tuesday, said its cloud computing arm, Amazon Web Services, grew 17% in the January-to-March period, above Wall Street’s 15% growth estimate, and hit a $100-billion annual run-rate for the first time.
Performance was consistent at Microsoft’s Azure and Google Cloud, which grew above expectations at 31% and 28%, respectively, in the first three months of the year.
“Looking across AWS, Microsoft Azure and Google Cloud, it is clear that two things are happening simultaneously – AI is contributing to growth, but also the rest of cloud spending is accelerating,” said DA Davidson & Co analyst Gil Luria.
For several years cloud infrastructure providers enjoyed growth rates as high as 60% and demand shot up during the Covid-19 pandemic as more businesses moved online. However, firms had to realign expectations last year as customers pulled back spend in an increasingly challenging business environment.
Forefront
The industry has been at the forefront of adopting AI and customers had begun to buy the new functionality at a rapid pace, executives said.
“The number of Azure AI customers continues to grow and average spend continues to increase,” Microsoft CEO Satya Nadella said on the company earnings call, adding that more than 65% of the Fortune 500 companies were Azure OpenAI Service customers.
AI services contributed seven percentage points in growth to Azure, up from six percentage points in the October-December quarter.
More than 60% of funded generative AI start-ups and nearly 90% of gen AI unicorns were using Google Cloud, Alphabet (Google) CEO Sundar Pichai said on his company’s earnings call last week.
“There is an inevitable and continuous migration of workloads to the cloud and consolidation of IT spending going towards large platforms, including the hyperscalers,” said RBC Capital Markets analyst Rishi Jaluria.
Hyperscalers are cloud providers with a large network of data centres and wide range of services, and are often preferred for end-to-end workload support. — Yuvraj Malik, (c) 2024 Reuters