Dave Vellante's Breaking Analysis: Cloud optimization wanes as AI slowly lifts off

The past twenty-four months have seen cloud spending face dual headwinds of macroeconomics and the ability to dial down resources as needed � i.e. cloud optimization. Nonetheless, the big four hyperscalers clocked in between $170 � $190B in IaaS and PaaS revenue last year depending on how you factor the leaked court documents suggesting Azure is much smaller than previously believed. Regardless, hyperscaler growth continued to outpace almost all markets, accelerating between 18-19% in revenue terms last year, despite their enormous size.

As we progress into 2024, IT decision makers are cautiously optimistic about spending levels, especially for the second half. All hyperscalers report that cloud optimization is slowing although pockets of cloud cost-cutting remain. While AI gets all the headlines, its contribution to revenue is still a small fraction of the overall spending pie. For example, we estimate that Microsoft's AI services accounted for around $800M this past quarter. But the trajectory for AI services and the potential uplift looks promising for all four hyperscalers. We think collectively the generative AI uplift in cloud will surpass $10B this year.

In this Breaking Analysis, we update you on our latest hyperscale cloud spending and market share data. We'll analyze the ETR survey data on cloud optimization, assess the Gen AI updraft for the big 3 US cloud players and look at some of the industry trend data on cloud spend by platform.

Watch the full video analysis.

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