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Cloud services and infrastructure markets reached $427 billion in revenue in the first half of 2024, marking a 23% growth from the same period in 2023, according to a Synergy Research Group report.

A notable shift occurred, with spending on public and private cloud data centers outpacing cloud services growth for the first time, driven by investments in generative AI.

Infrastructure spending grew 30%, while IaaS (Infrastructure as a Service), PaaS (Platform as a Service), and SaaS (Software as a Service) averaged 21% growth.

AWS

The report noted that despite this, cloud services remain double the size of infrastructure spending.

Meanwhile hyperscale operators, such as Microsoft, Amazon and Google, continue expanding their data center networks, with capacity growing by nearly a quarter and their pipeline of future centers up nearly half.

Leading hardware players include Dell, HPE and Nvidia, which the report noted is rapidly increasing its market share in AI-driven infrastructure.

John Dinsdale, a chief analyst at Synergy Research Group, said the major cloud providers are having to make big investments into their data center infrastructure, but the current bump in spending levels is to support surging demand for revenue-generating AI services.

โ€œThere is no doubt that the long-term demand is there, so payback for added infrastructure capex comes from both immediate and future incremental revenues,โ€ he said.

Scott Wheeler, cloud practice lead at Asperitas, said the surge in cloud data center spending will significantly benefit cloud service providers like Amazon, Microsoft and Google.

โ€œThese providers must expand their infrastructure to meet AI-driven processing power and storage demands for the new AI services they are planning and have already started,โ€ he said.

He predicted the expansion will further solidify their position as leaders in the cloud ecosystem.

โ€œThe growing reliance on AI will create new opportunities for specialized services, partnerships and innovative solutions to support AI development and deployment in various industries,โ€ he added.

From Dinsdaleโ€™s perspective, the same story that has played out over the last five years will continue to play out over the next five.

โ€œThe cloud market is a game of scale and to be a leading player requires enormous and ongoing investments in global infrastructure and operations,โ€ he said.

That means a leading player must have a huge network of data centers spanning multiple geographies, continuous investment in technology and new product development, and a global brand that plays well across multiple regions and industries.

โ€œThe natural result is a cloud market that is characterized by a very small number of leading players,โ€ Dinsdale said.

He added however that it is a โ€œhuge marketโ€ and there are ongoing opportunities for smaller companies to do well.

โ€œThe key is to focus on niche geographic areas, industry verticals, or applications where you can build a long-term sustainable competitive advantage,โ€ he said. โ€œGoing head-to-head with Amazon, Microsoft or Google is not likely to be a recipe for success.โ€

He recommended smaller providers instead target areas around the edge or deeper down where extra value can be added and exploited.

โ€œThe leading cloud providers have gained substantial market share over the years, but overall market growth has been sufficient to enable small-medium sized players to grow too,โ€ he explained.

The report noted geographically, the U.S. remains the dominant force, accounting for 44% of cloud service revenues and 53% of hyperscale data center capacity.

Wheeler pointed out that as Chinese cloud companies like Alibaba and Huawei expand, U.S. dominance in cloud infrastructure may face increasing competition, especially in emerging markets.

However, U.S. providers such as Amazon, Microsoft and Google maintain a significant lead in global market share, technological innovation, and partnerships.

โ€œThe growth of Chinese firms will likely focus on domestic and regional markets, while U.S. firms could continue expanding in areas with higher AI and hyperscale demands,โ€ he said. โ€œU.S. dominance will persist, but it will face localized competition in regions where Chinese companies have stronger footholds.โ€

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