Public Cloud XI: Cost Savings Cycle Makes Way For Burgeoning Gen AI
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Our 11th annual survey of 680 U.S. respondents suggests a vast majority of cloud customers will finish cost optimizations by YE’23, setting up for additional workload transition. Generative AI workflows are ramping, with nearly 75% of respondents either highly considering allocating IT budget or have already allocated budget. Other insights include workload migration, multi-cloud, and lengthening contracts.
Our 11th Annual Cloud Survey provides an updated view on:
We surveyed 680 respondents comprising ~$9.5BN in IT spend; the sample was split evenly among SMB, Midsize, and Enterprise customers.
We view the major public cloud platforms mostly through cost optimizations that started in the middle of 2022. Per our survey, most cloud customers (or 76% of total who implemented cost optimizations) will likely finish their efforts by the end of 2023, while >50% finished by the end of Q3 2023.
Key levers of public cloud spend growth going forward include:
Global public cloud market revenue of $488BN in 2022 is expected to rise to $1.16TN in 2027, a ~19% CAGR per Gartner. Meanwhile, Infrastructure as a Service (IaaS) is the fastest growing segment at a 23% CAGR between 2022-2027.
On average, survey respondents expect their spend with public cloud providers to grow ~30% in 2023, down from 35% in 2022 (at the median). This growth gives us greater confidence in our forecasts for the big 3 hyperscalers. It also allows us to paint a more constructive picture than current investor sentiment. The data directionally shows the revenue deceleration we are seeing from the large public cloud platforms and led in part by heightened cost optimizations. However, we expect heightened cost optimizations to largely be over post 2023. The respondents’ expectation for spend growth deceleration aligns with our estimates of major public cloud vendors. For instance, we forecast revenue growth of ~15% y/y in 4Q23 vs +20% y/y in 4Q22 for the leading cloud provider.
Overall, we are encouraged by upcoming growth levers, including more workloads moving to the cloud and investments in Gen AI.