Global cloud spending grows 21% in Q1 2024

Worldwide cloud infrastructure services expenditure grew by 21% year-on-year in Q1 2024 to reach US$79.8 billion, an increase of US$13.4 billion. The top three cloud providers – AWS, Microsoft Azure and Google Cloud – collectively grew by 24%, accounting for 66% of total spending. All three hyperscalers experienced a growth rate surge, as enterprise cloud spending accelerated. However, Microsoft outpaced both AWS and Google Cloud, with sales rising by an impressive 31% year-on-year, nearly double AWS’s growth rate of 17%, while Google Cloud grew 28% year-on-year. Despite holding the largest market share, AWS faces increasing competition from its fast-growing competitors. In May 2024, the company announced the departure of CEO Adam Selipsky after three years in the role.

AI is an increasingly important demand driver of public cloud investment. The cloud effectively caters to the increased demand for computing and storage in AI applications. Global demand for AI integration with cloud technologies is motivating hyperscalers to integrate AI-enabled features into their cloud offerings and build strong partnerships with companies at the forefront of AI development.

Enterprises are shifting their focus from optimizing cloud budgets toward investing in new initiatives, fueled by a potential AI integration. All three of the top hyperscalers saw an increase in the number of multi-year commitments from enterprise customers, suggesting that many businesses are readying themselves for a long-term increase in cloud consumption. “There is significant variation in the strategies of the top three hyperscalers, reflected in their differing growth rates,” said Yi Zhang, Analyst at Canalys. “Microsoft’s end-to-end portfolio is proving to be a strong competitive moat, while Google’s strength in AI is giving it a strong tailwind. However, AWS’ recent US$4 billion investment in Anthropic for generative AI and its ongoing AI integration in its cloud services underscores a determination to stay ahead of the pack as business priorities shift to AI.”

Fueled by the AI revolution, enterprises are reevaluating their entire technology stack, signaling a significant inflection point for cloud computing. As organizations embrace AI-driven initiatives, there is a potential need to transfer their workloads and data to cloud platforms to avail themselves of essential computing and storage capacities. However, the process of transitioning to the cloud can be intricate and financially burdensome, which potentially hinders the adoption of AI. Addressing these transition costs to enable a seamless migration to cloud services will be key to unlocking the full potential of AI adoption.

“The convergence of AI and cloud represents a transformative juncture, reshaping how businesses approach technology for innovation and growth. Businesses must navigate the complexities of optimizing costs associated with AI infrastructure, including compute resources, storage and data processing, while ensuring that investments in AI technologies yield tangible returns,” said Alex Smith, VP at Canalys. “Looking ahead, cloud service providers as a whole will endeavor to capitalize on this trend by embedding AI in their products and solutions, making AI integration not something novel, but the norm.”

• Amazon Web Services (AWS) maintained its market leadership this quarter, accounting for 31% of the global cloud services market. With an increase of 17% in Q1 2024, this was its highest year-on-year growth rate in the past year and puts AWS on track to generate an annualized revenue of US$100 billion. However, the departure of AWS CEO Selipsky suggests the company is looking for fresh energy to combat market share erosion. AWS ramped up its progress in gen AI development during Q1 and launched the Generative AI Competency Program in March 2024 to recognize and promote partners with demonstrated AWS technical expertise and customer success. The certification requires partners to go through months of training, prove technical proficiency and provide four customer case studies.​ Additionally, AWS enhanced its AI foundation model offerings with Meta’s Llama 3, Mistral’s models and its self-developed Amazon Titan models.
• Microsoft Azure ranked as the second-largest cloud service provider with a market share of 25% and an accelerating year-on-year growth rate of 31% in Q1 2024. It revealed that AI-related demands contributed 7% to Azure’s revenue. It announced plans to strengthen its strategic partnership with OpenAI, with over 65% of Fortune 500 companies now using the Azure OpenAI service. Azure has also enhanced its support for various models and enriched its AI ecosystem with advanced solutions like SLM Phi-3 in April 2024. In addition to the significant rise in customer spending on AI-related initiatives, revenue from cloud migrations is rapidly increasing. By helping customers streamline their cloud migrations, Azure Arc more than doubled its customer base year-on-year.
• Google Cloud was the third largest provider, with a market share of 10% and a year-on-year growth rate of 28%. At the end of Q1 2024, Google Cloud accumulated US$80.7 billion in revenue backlog, up from US$61.3 billion in Q1 2023. At Google Next in April 2024, the company announced that Gemini 1.5 Pro is now available in over 180 countries, offering developers speech comprehension capabilities and additional tools. They also announced several new AI-powered features such as adding Gemini to Google Workspaces and launching AI Security within Google Drive. In the Q1 earnings call, it was unveiled that Google Cloud aims to capitalize on AI opportunities by leveraging both partners alongside its internal solutions like Vertex AI and Workspace.

Canalys