Big Tech's rising Cloud

Future growth looks promising

May 04, 2024

Hello,

Big Tech reported their earnings in the last few days and one thing stood out - Public Cloud doesn’t show any signs of slowing down.

In fact in Q1-24, for all 3 major public cloud providers, YoY growth accelerated compared to Q1-23.

  • Amazon (AWS): 17% vs 16%

  • Microsoft Intelligent Cloud: 21% vs 16%

  • Google Cloud: 28.4% vs 28.1%

In today’s post, we explore if Cloud can keep rising as fast in future.

DATA STORY

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Pioneered by Amazon in 2006, the Public Cloud services across the 3 major providers - Amazon, Microsoft and Google, has grown to ~$230 Billion in annualized revenue (12 months ending Q1-24)

Even at this gargantuan scale, the 3 provider’s collective annualized revenue has grown at 20% CAGR since 2022.

But how much runway is still there for future growth?

I think quite a lot.

Public Cloud is still a only a fraction of IT spend worldwide.

Enterprise IT spend globally is very large: ~$4.7 Trillion dollars in 2023

And Public Cloud (across all providers, not just the 3 Big Tech) is only ~12% of this spend.

IT spend has grown at a CAGR of 5.4% between 2018-2023. Of that spend, share of Public Cloud has grown from 5% to 12% in the same time period (or +1.4% share gain per year (Source: Gartner)

I don’t have a crystal ball - but if we do a simple back of the envelope calculation and assume that :

  • IT spend will continue to grow by 5.4% per year, for next 5 years, and

  • Public Cloud will keep increasing share by +1.4% per year of that spend,

then, we can estimate that Cloud Revenue of Google, Amazon and Microsoft will collectively grow to ~$475 billion by 2028 (or about 16% annualized growth for the next 5 years)

Future is uncertain and extrapolating history is risky. However, I think this growth is achievable especially considering how big a moat Public Cloud is becoming due to heavy investments, and the likely acceleration due to GenAI investments (which has already started to happen)

He is a bit biased, but here is Andy Jassy, Amazon CEO, talking about Amazon Web Services in the latest earnings call

“We remain very bullish on AWS. We're at a $100-billion-plus annualized revenue run rate, yet 85% or more of the global IT spend remains on-premises.

And this is before you even calculate [generative artificial intelligence], most of which will be created over the next 10 to 20 years from scratch and on the cloud.”

- Andy Jassy, Amazon CEO

BUSINESS QUIZ

Photo from Wikipedia

GOOD READS

Sharing some fun and useful links that you may also like:

  • [Fun] A 30 second video of Jeff Bezos showing Amazon’s first office. Humble beginning of a modern empire.

  • [Free Resource] A “one-stop” shop to get annual reports of all major companies. Saves me a tonne of time, going to individual websites and hunting for reports. Check out the free website here.

  • [2 min Read] A fascinating Twitter post about the UX researcher who rebuilt YouTube’s home page. Perfect example of a how a single dedicated individual can move mountains.

For those who didn’t attempt the quiz, the correct answer is Yes

That’s all for this week. Thanks for reading! 👋

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