The State of the Cloud in Q3

We closely watch cloud revenues of Amazon, Microsoft, and Google to gauge the direction of the software market. The cloud divisions of these companies are Amazon’s AWS, Microsoft’s Intelligent Cloud, and Google Cloud Products. All three have now reported their Q3 financials, summarized below.

Microsoft saw a slight decline in its Intelligent Cloud revenue, with a year-over-year drop of 1% despite Azure growing by 30% (Azure being its flagship product in this segment). This decline was not due to demand but rather to infrastructure constraints. “Demand continues to be higher than our available capacity,” explained Microsoft CFO Amy Hood, highlighting the company’s challenge in building data centers fast enough to keep up. Amazon, Microsoft, and Google collectively spent $51 billion on cloud capital expenditures (CapEx) this quarter, up from $31 billion a year ago.

Google Cloud outpaced the previous quarter’s growth, achieving a 36% year-over-year increase compared to 29% in Q2. Amazon also maintained steady growth, with AWS up 19% year-over-year. Notably, Amazon CEO Andy Jassy mentioned that the company’s cloud AI business is growing at a triple-digit rate, outpacing the overall growth of AWS.

It’s worth noting that while Google Cloud remains about one-third the size of Amazon’s and Microsoft’s cloud businesses. The combined cloud revenue of these three providers offers the clearest view of the industry’s overall health and, by extension, software and AI spending. Together, they generated $63 billion in cloud revenue this quarter which is a 13% year-over-year increase. While growth has slowed slightly primarily due to Microsoft’s constraints, this is still a solid performance considering the massive revenue base.

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