State of the Cloud and SaaS

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 Q3 financials, and commentary on their cloud products and what it tells us about the direction of software buying is below.

Microsoft growth. Microsoft recorded $24.26bln of cloud revenue in Q3, representing growth of 19% year over year (“YOY”). AI tools drove the growth. AI is helping offset the trend of clients looking to save money on cloud spend.

AWS growth. AWS grew only 12% year over year, to $23bln in net sales for the quarter. According to CEO Andy Jassy, AWS continues to “stabilize” but “customer cost optimization still remain a headwind….we have seen the rate of new cost optimization slow down in AWS, and we are encouraged by the strength of our customer pipeline.” AI is not having the offsetting impact to customer cost reduction that Microsoft is experiencing.

Google Cloud. Google’s Cloud recorded $8.4bln of Q3 2023 sales versus $6.8bln in Q3 2022, growth of 22% YOY. Google continues to report that clients are ‘optimizing’ their cloud spend, which again means finding ways to reduce it. It’s notable that Google’s cloud is 1/3rd the size of the Amazon and MSFT, but grows only slightly faster than MSFT (22% for Google vs 19% for MSFT).

Overall. The combined Q3 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 $56bln in cloud revenue in Q3, growing 17%. That growth does represent an uptick from Q2, 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 quarter to quarter (you can see we finally have some yellow and green trends in the table).

Thank you for reading. Visit blossomstreetventures.com for more SaaS data.