The cloud infrastructure market has rebounded strongly from the challenges of 2023, posting impressive growth in another solid quarter. Revenues continue to rise, driven by the growing interest in artificial intelligence (AI). According to Synergy Research, the market generated sales of USD 79 billion this quarter, a significant increase of USD 14.1 billion or 22% compared to last year.
Synergy reports that this is the third consecutive quarter of year-on-year growth of more than 20%, with AI playing a key role in this expansion.
Despite the hurdles that had to be overcome last year, the cloud market shows no signs of slowing down. Even during political and economic uncertainty, Synergy principal analyst John Dinsdale predicts continued growth and expects the market to double again in four years. By comparison, it has taken 13 quarters for the market to double from 40 billion dollars to almost 80 billion dollars—a milestone it will soon pass.
AI's Role
One unexpected development this quarter was that Microsoft's Intelligent Cloud segment, which includes Azure, fell short of analysts' expectations. CNBC reports that the company reported revenue of 28.52 billion dollars, just short of the 28.68 billion dollars expected. Still, Azure achieved 30% growth, according to Jamin Ball, partner at Altimeter Capital, suggesting that overall performance was still strong.
Dinsdale cautions against overreacting to this slight miss, emphasizing that Microsoft's Intelligent Cloud revenue aligned with the guidance given three months ago. He pointed out that 19% growth on a $28.5 billion business is impressive, especially for Azure, which grew 29% in the quarter. "That's pretty impressive," Dinsdale told TechCrunch.
Amazon also reported strong results, with $26.3 billion in revenue for the quarter, up 19% year-over-year. This indicates a stable growth rate, following a decline to 12% and 13% growth in early 2023.
Google Cloud also had a remarkable quarter, surpassing the $10 billion revenue mark for the first time, representing a 29% year-over-year increase, according to Ball. It's important to note that this figure includes Google Workspace and infrastructure services. More importantly, based on Synergy's data, which excludes Workspace, Google gained a full percentage point in market share.
The quarter's market share breakdown shows that Amazon holds 32% (approximately $25 billion), Microsoft holds 23% (approximately $18 billion), and Google holds 12% (approximately $9.5 billion). It is noteworthy that Microsoft lost about two percentage points in market share compared to the previous quarter, which Synergy attributes to seasonal fluctuations in Azure's sales cycle.
"There is some seasonality in Azure numbers, and sequential growth often slows in the April-June quarter after strong growth in previous quarters," Dinsdale explained. "While Azure has not grown compared to the first quarter, Amazon and Google have grown, and their market shares have improved. If you take out the effects of seasonality and look at rolling annualized growth rates, Azure has grown more than Google or Amazon. Azure is certainly not in a slump."
At the next level of cloud providers, Oracle increased its market share to 3%, overtaking IBM and tying with Salesforce in fifth place. While this may seem modest, the big three — Amazon, Microsoft, and Google — dominate more than 73% of the market, so 3% is still significant, equating to more than $2 billion in revenue.
Analyzing cloud market data can be complex, as companies and research firms use different methodologies. Ball bases its analysis on publicly reported information. At the same time, Synergy includes infrastructure as a service (IaaS), platform as a service (PaaS), and hosted private cloud services in its calculations but excludes software as a service (SaaS) and includes its market analysis.
