Hyperscalers place big bets on AI as cloud spending rolls on

The global cloud infrastructure services market remains strong, buoyed in part by enterprise interest in AI. That interest is in turn spurring the Big 3 cloud vendors to accelerate AI offerings in hopes of winning even larger portions of the global cloud market, even as CIOs seek to sharpen strategies to curb costs and maximize their return from the cloud.

In the second quarter of 2024, global spending on cloud infrastructure services grew by 19% year-over-year to surpass the $78 billion mark. While enterprise IT budgets have grown, a significant portion of spending is now going to investments related to artificial intelligence (AI). According to a new report from Canalys, the top three cloud providers — AWS, Microsoft Azure, and Google Cloud — collectively grew by 24% this quarter to account for 63% of total spending. 

AWS showed healthy growth compared to the previous quarter, with Q2 sales up 19%, but trailing vendors Microsoft and Google cut into Amazon’s lead with quarterly growth rates of 29% and 30%, respectively. Also worth noting is that, while a third of the global cloud market share is still held by other providers, it is shifting toward the major hyperscalers, which are reaping an ever-larger piece of the pie.

According to Canalys, the growing demand for AI is expected to create significant opportunities for sustained growth in cloud services. As businesses adopt AI technologies, they will require more advanced and scalable cloud infrastructure, which will drive continued investment and development in the cloud. But concerns are emerging regarding potential overinvestment in AI as returns appear to be taking longer than initially anticipated. 

Still, hyperscalers continue to increase their offerings for the trending technology. And enterprises keep adopting them in hopes of eventual payoff.

To that end, all three hyperscalers reported significant increases in the number of customers using AI. And they continue to introduce new AI products to meet the demand, such as Gemini 1.5 from Google Cloud and GPT-4o mini from Azure. AWS, through its cloud platform Bedrock, also offers Claude 3.5 Sonnet and other APIs.

“Commercializing new technologies doesn’t happen overnight,” said Alex Smith, vice president at Canalys. “The future of cloud computing remains bright. In the face of transformative tools like AI, major vendors will invest for fear of being left behind. AI relies on massive-scale processing and storage capacity, and hyperscalers expect AI-based services to become the next compelling reason for customers to move to the cloud.”

In addition to launching new AI products and solutions, hyperscalers are ramping up efforts to strengthen their AI partner ecosystems. This quarter, major vendors are placing a special emphasis on fostering AI startups. Notable initiatives include AWS’s Generative AI Accelerator and Google Cloud’s Google for Startups Accelerator, both aimed at attracting AI startups and driving innovation within the industry.

“Startups bring fresh perspectives, agility, and specialized expertise, providing hyperscalers with opportunities to tap into emerging markets, address technology gaps, and acquire new talent,” said Yi Zhang, an analyst at the firm. “By backing startups, hyperscalers ensure that even the smallest companies can contribute to and benefit from rapid advances in AI technology, ultimately driving growth, strengthening their ecosystems, and maintaining their competitive advantage in the industry.”