We closely monitor Amazon, Microsoft, and Google’s cloud revenues to get a feel for where the market for software is going. Those companies cloud segments are Amazon’s AWS, Microsoft’s Intelligent Cloud, and Google Cloud Products. All three companies have reported Q4 financials, and commentary on their cloud products and what it tells us about the direction of software buying is below.
Microsoft growth. In Q3, AI was helping offset the trend of clients looking to save money on cloud spend. Now “we’ve moved from talking about AI to applying AI at scale,” said Satya Nadella. This trend continued in Q4, with Cloud generating $25.9mm of ARR growing 20% YOY.
AWS growth. AWS said things were stabilizing in Q3. Sure enough that may be the case as they reported $24.2bln in revenue growing 13% YOY. There is a new generation of chips, AWS Graviton4 chips, that Amazon has been using, improving computing performance by 30%, with 75% more memory bandwidth.
Google Cloud. Google’s cloud revenue was $9.2bln in Q4, growing 26%YOY. It’s notable that Google’s cloud is 1/3rd the size of the Amazon and MSFT, but grows only slightly faster than MSFT (26% for Google vs 20% for MSFT).
Overall. The combined Q4 revenue of all three providers is really the number to look at if we want to see the overall health of the cloud market and in our view, software spend. The three cloud providers combined did $59bln in cloud revenue in Q4, growing 18%. That growth does represent an uptick from Q2 and Q3, so perhaps the trend of customers reducing their cloud spend is reversing, especially given the benefits of AI. That’s the most positive sign for overall software sales we have seen since at least Q1 2022, as growth has finally ticked up for 2 quarters (you can see we finally have some yellow and green trends in the table).
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