According to a report by Canalys, the cloud services market saw strong, steady growth in the third quarter (Q3) of financial year 2024-2025. Amazon Web Services (AWS), Microsoft Azure and Google Cloud reported positive returns on their artificial intelligence (AI) investments, which have begun to contribute to their overall cloud business performance. These returns reflect a growing reliance on AI as a key driver for innovation and competitive advantage in the cloud.
With the increasing adoption of AI technologies, demand for high-performance computing and storage continues to rise, putting pressure on cloud providers to expand their infrastructure. In response, leading cloud providers are prioritising large-scale investments in next-generation AI infrastructure. To mitigate the risks associated with under-investment such as being unprepared for future demand or missing key opportunities, they have adopted over-investment strategies, ensuring their ability to scale offerings in line with the growing needs of AI customers. Accordingly, they have all signalled that capital expenditure will sustain their rapid growth trajectories and are expected to continue on this path into 2025.
Amazon Web Services (AWS) maintained its lead in the global cloud market in Q3 FY24, capturing a 33 per cent market share and achieving 19 per cent year-on-year (YoY) revenue growth. It continued to enhance and broaden its AI offerings by launching new models through Amazon Bedrock and SageMaker, including Anthropic’s upgraded Claude 3.5 Sonnet and Meta’s Llama 3.2. It reported a triple-digit YoY increase in AI-related revenue, outpacing its overall growth by more than three times. Over the past 18 months, AWS has introduced nearly twice as many machine learning and generative AI (GenAI) features as the combined offerings of the other leading cloud providers. In terms of capital expenditure, AWS announced plans to further increase investment, with projected spending of approximately $ 75 billion in 2024. This investment will primarily be allocated to expanding technology infrastructure to meet the rising demand for AI services, underscoring AWS’ commitment to staying at the forefront of technological innovation and service capability.
The report highlighted that Microsoft Azure remains the second-largest cloud provider, with a 20 per cent market share and impressive annual growth of 33 per cent. This growth was partly driven by AI services, which contributed approximately 12 per cent to the overall increase. Over the past six months, use of Azure OpenAI has more than doubled, driven by increased adoption by both digital-native companies and established enterprises transitioning their applications from testing phases to full-scale production environments. To further enhance its offerings, Microsoft is expanding Azure AI by introducing industry-specific models, including advanced multimodal medical imaging models, aimed at providing tailored solutions for a broader customer base. Additionally, the company announced new cloud and AI infrastructure investments in Brazil, Italy, Mexico and Sweden to expand capacity in alignment with long-term demand forecasts.
It also mentioned that Google Cloud, the third-largest provider, maintained a 10per cent market share, achieving robust year-on-year growth of 36 per cent. It showed the strongest AI-driven revenue growth among the leading providers, with a clear acceleration compared with the previous quarter. As of September 2024, its revenue backlog increased to $ 86.8 billion, up from $ 78.8 billion in Q2, signalling continued momentum in the near term. Its enterprise AI platform, Vertex, has garnered substantial user adoption, with Gemini API calls increasing nearly 14-fold over the past six months. Google Cloud is actively seeking and developing new ways to apply AI tools across different scenarios and use cases. It introduced the GenAI Partner Companion, an AI-driven advisory tool designed to offer service partners personalised access to training resources, enhancing learning and supporting successful project execution. In Q3 FY24, Google announced over $ 7 billion in planned data centre investments, with nearly $ 6 billion allocated to projects within the United States.
Commenting on the report, Rachel Brindley, senior director, Canalys, said, “Continued substantial expenditure will present new challenges, requiring cloud vendors to carefully balance their investments in AI with the cost discipline needed to fund these initiatives. While companies should invest sufficiently in AI to capitalise on technological growth, they must also exercise caution to avoid overspending or inefficient resource allocation. Ensuring the sustainability of these investments over time will be vital to maintaining long-term financial health and competitive advantage.”
Meanwhile, Yi Zhang, analyst, Canalys, said, “On the other hand, the three leading cloud providers are also expediting the update and iteration of their AI foundational models, continuously expanding their associated product portfolios. As these AI foundational models mature, cloud providers are focused on leveraging their enhanced capabilities to empower a broader range of core products and services. By integrating these advanced models into their existing offerings, they aim to enhance functionality, improve performance and increase user engagement across their platforms, thereby unlocking new revenue streams.”
