Three of the Wall Street's heavyweight technology firms have reported better-than-expected sales at their cloud computing units in recent days, as interest in artificial intelligence drives a rebound in spending by corporate customers.
Growth in the $270 billion cloud infrastructure market, a cash engine for Amazon.com (AMZN.O), Microsoft (MSFT.O) and Alphabet (GOOGL.O), gives the clearest sign yet that AI investment is bearing fruit after investors drove those stocks to record highs, thanks to optimism about the emerging technology.
Many big customers have started spending again on cloud computing after pausing last year to cut costs, executives and analysts said.
Amazon, the last of trio to report on Tuesday, said its cloud computing arm AWS grew 17% in the January-to-March period, above Wall Street's 15% growth estimate, and hit a $100 billion annual run-rate for the first time.
Performance was consistent at Microsoft's Azure and Google Cloud, which grew above expectations at 31% and 28%, respectively, in the first three months of the year.
"Looking across AWS, Microsoft Azure and Google Cloud, it is clear that two things are happening simultaneously – AI is contributing to growth, but also the rest of cloud spending is accelerating,” said D.A. Davidson & Co analyst Gil Luria.
For several years cloud infrastructure providers enjoyed growth rates as high as 60% and demand shot up during the COVID-19 pandemic as more businesses moved online. However, firms had to realign expectation last year as customer pulled back spends in an increasingly challenging business environment.
The industry has been at the forefront of adopting AI and customers had begun to buy the new functionality at a rapid pace, executives said.
"The number of Azure AI customers continues to grow and average spend continues to increase," Microsoft CEO Satya Nadella said on the company earnings call, adding that more than 65% of the Fortune 500 companies were Azure OpenAI Service customers.
AI services contributed 7 percentage-points in growth to Azure, up from 6 percentage points in the Oct-Dec quarter.
More than 60% of funded generative AI startups and nearly 90% of genAI unicorns were using Google Cloud, Alphabet CEO Sundar Pichai said on his company's earnings call last week.
"There is an inevitable and continuous migration of workloads to the cloud and consolidation of IT spending going towards large platforms, including the hyperscalers," said RBC Capital Markets analyst Rishi Jaluria.
Hyperscalers are cloud providers with a large network of data centers and wide range of services, and are often preferred for end-to-end workload support.
