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October 27, 2023

Microsoft Azure the big winner as generative AI helps stabilise public cloud market growth

Though IT spending has been constrained, demand for AI systems is helping the hyperscalers continue their growth.

By Matthew Gooding

The cloud hyperscalers delivered their latest financial results this week, and helped the overall public cloud market grow by 18% in the last quarter, new figures reveal. Microsoft Azure was the biggest winner, with its investments in popular generative AI systems helping it narrow the gap on its biggest rival, Amazon’s AWS.

Public cloud spending grew 18% year-on-year in Q3. (Photo by Tada Images/Shutterstock)

Data from Synergy Research Group shows the global public cloud market was worth $68bn in the third quarter of the year, up 18%, or $10.5bn, year-on-year. While the economic slowdown, and political tensions between the US and China, have hindered spending, growing interest in artificial intelligence tools has helped offset this.

Global public cloud market grows 18% in Q3 2023

Synergy’s data shows that Azure has grown its share of the market by 2% year-on-year, continuing an upward trend for Microsoft’s cloud platform. AWS still leads the way with 32% of the market, and the duo, along with Google Cloud, hoovered up 66% of total cloud revenues in the quarter.

Microsoft on Wednesday reported that revenue for its cloud intelligence business unit in Q3 was $24.3bn. Within that, the company said Azure revenue grew 29% year-on-year, though it did not disclose a figure. Microsoft's overall revenue was up 13%, to $56.5bn.

The company was an early backer of generative AI services through its partnership with OpenAI, the developer of ChatGPT. In the past nine months, it has announced a raft of AI-based services and enhancements to its tools, most of which are delivered through Azure.

Elsewhere, AWS saw revenue rise 12.3% in the quarter, to $23.06bn. Growth has been slowing for the cloud market leader in recent months (in Q3 2022 it reported income up 27.5% on the previous year) but it retains a healthy lead in the market.

Google Cloud reported revenue growth of 22%, to $8.41bn, but this was slower than the 28% it registered the previous quarter, and did not hit the level expected by Wall Street analysts.

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Both AWS and Google Cloud indicated a desire from IT buyers looking to control spending has had an impact on their bottom line. Google Cloud CFO Ruth Porat said on the company's earnings call that its year-on-year growth "reflects the impact of customer optimisation efforts". Amazon CEO Andy Jassy told investors more customers are using the AWS-designed Graviton chips to reduce costs, as well as spreading payments over longer contract terms which is impacting income.

Will AI (and China) sustain public cloud market growth?

With IDC predicting that AI spending will double to $300bn globally by 2026, demand for generative AI tools is likely to sustain growth for the hyperscalers. While Microsoft has been the early beneficiary, AWS is pushing ahead with its own AI tools through its Bedrock platform, while Google, which has developed its own large language model, PaLM, has been introducing AI in search and its cloud-based Workspace productivity suite.

A spokesperson for Synergy Research Group said: "While the law of large numbers continues to exert downward pressure on cloud market growth rates, AI is giving the market an added boost. "Helped by AI, there are signs that many enterprises are through their period of belt-tightening and of optimising rather than growing their cloud operations."

The company believes the "large Chinese market is also gradually nudging back towards a more normal growth pattern, after a long period of constrained cloud operations. Synergy fully expects future cloud growth rates to remain buoyant over the coming years."

Read more: CMA to probe AWS and Azure dominance of UK cloud market

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