NEW YORK - 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 (AI) drives a rebound in spending by corporate customers.
Growth in the US$270 billion (S$370 billion) cloud infrastructure market, a cash engine for Amazon.com, Microsoft and Alphabet, 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 in 2023 to cut costs, executives and analysts said.
Amazon, the last of the trio to report on April 30, said its cloud computing arm Amazon Web Services (AWS) grew 17 per cent in the January-to-March period, above Wall Street’s 15 per cent growth estimate, and hit a US$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 per cent and 28 per cent, respectively, in the first three months of 2024.
“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 D.A. Davidson & Co analyst Gil Luria.
For several years, cloud infrastructure providers enjoyed growth rates as high as 60 per cent, and demand shot up during the Covid-19 pandemic as more businesses moved online. However, firms had to realign expectations in 2023 as customers pulled back spending in an increasingly challenging business environment.
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 chief executive Satya Nadella said on the company earnings call, adding that more than 65 per cent of the Fortune 500 companies were Azure OpenAI Service customers.
AI services contributed 7 percentage points in growth to Azure, up from 6 percentage points in the October-December quarter.
More than 60 per cent of funded generative AI start-ups and nearly 90 per cent of genAI unicorns were using Google Cloud, Alphabet 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. REUTERS
