Cloud Market Gets its Mojo Back; AI Helps Push Q4 Increase in Cloud Spending to New Highs

RENO, NV, February 1, 2024

New data from Synergy Research Group shows that Q4 enterprise spending on cloud infrastructure services was close to $74 billion worldwide, up by over $12 billion from the fourth quarter of 2022. The year-on-year growth rate was 20% in Q4, markedly higher than the previous three quarters. Notably, the market grew by $5.6 billion from Q3. That is by far the largest quarter-on-quarter increase ever achieved. For the year as a whole, the market grew 19% from 2022. While economic, currency and political headwinds have diminished somewhat, it is clear that generative AI technology and services have had a major impact, helping to further boost cloud spending. In terms of competitive positioning, among the largest cloud providers Google and Microsoft had the stronger year-on-year growth numbers, with Microsoft increasing its worldwide market share by almost two percentage points from the fourth quarter of last year. Google’s share also increased. Their Q4 worldwide market shares were 24% and 11% respectively. Meanwhile market leader Amazon saw its worldwide market share drop to 31% despite maintaining strong double-digit growth rates. In aggregate the three leaders accounted for 67% of the worldwide market. Among the tier two cloud providers, those with the highest year-on-year growth rates include Huawei, China Telecom, Snowflake, MongoDB, Oracle and VMware. With most of the major cloud providers having now released their earnings data for Q4, Synergy estimates that quarterly cloud infrastructure service revenues (including IaaS, PaaS and hosted private cloud services) were $73.7 billion, with full year 2023 revenues reaching $270 billion. Public IaaS and PaaS services account for the bulk of the market and those grew by 21% in Q4. The dominance of the major cloud providers is even more pronounced in public cloud, where the top three account for 73% of the market. Geographically, the cloud market continues to grow strongly in all regions of the world. When measured in local currencies the APAC region had the strongest growth, with India, China, Australia and Japan all growing by 20% or more year over year. The US remains by far the largest cloud market, with its scale surpassing the whole APAC region. The US market grew by 16% in Q4.

Given improving market conditions and huge excitement around generative AI, Synergy had forecast an uptick in cloud growth rate for the fourth quarter, but the actual growth was even higher than expected. Cloud is now a massive market and it takes a lot to move the needle, but AI has done just that. Looking ahead, the law of large numbers means that the cloud market will never return to the growth rates seen prior to 2022, but Synergy does forecast that growth rates will now stabilize, resulting in huge ongoing annual increases in cloud spending. Synergy expects the annual market to soon reach the $500 billion mark.