Synergy: AI helps stabilize Q3 cloud market growth rate

According to a new Synergy Research Group report, this is the fifth quarter where the cloud market grew by $10 to $11 billion from the previous year. Further, the year-on-year growth rate was 18% in the third-quarter, broadly in line with the last two quarters.

While the current economic and political climate has dampened some growth in cloud spending, the research firm noted that generative AI technology and services are starting to help overcome those barriers. Third-quarter spending was up 5% from the second-quarter, which Synergy said was “substantially higher than the quarter-on-quarter growth rate seen in the previous two quarters.”

Taking out the seasonal peaks that are typically seen every fourth quarter, the sequential growth in cloud spending was the highest it has been since 2021.

Google, Microsoft and Amazon dominate market

Google and Microsoft continued to dominate the cloud services market. Google and Microsoft had the most substantial year-on-year growth numbers, with Microsoft increasing its worldwide market share by almost two percentage points from the third quarter of last year. The two providers’ worldwide market shares were 23% and 11% respectively.

Meanwhile, Amazon stayed within its long-standing market share band of 32-34%, though towards the bottom end of that range. In all, Google, Microsoft and Amazon accounted for 66% of the worldwide cloud services market. Among the tier-two cloud providers, those with the highest year-on-year growth rates include Oracle, Snowflake, MongoDB, VMware, Huawei and China Telecom.

Since the majority of the major cloud providers have released their third-quarter earnings, Synergy estimates that quarterly cloud infrastructure service revenues (including IaaS, PaaS and hosted private cloud services) were $68.1 billion, with trailing twelve-month revenues reaching $257 billion.

Public IaaS and PaaS services growth

Public IaaS and PaaS services account for most of the market, which grew by 19% in Q3. The dominance of the major cloud providers is even more pronounced in the public cloud, where the top three control 72% of the market.

On a geographic basis, the cloud market continues to increase in all world regions. When measured in local currencies, the APAC region had the most robust growth, with India, China, Australia and Japan all growing by 20% or more year over year.

AI boost

One factor that’s driving new growth in the cloud services market is AI.

Synergy said that AI is giving the cloud services “market an added boost.” With the advent of AI, many enterprises have completed their cost-cutting and optimizing their cloud operations. AI is enabling a wide range of new cloud workloads.

Specifically, the Chinese market is also gradually nudging back towards a more normal growth pattern after a long period of constrained cloud operations.

Synergy expects future cloud growth rates to remain buoyant over the coming years.

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