Cloud Frontier Report - Q2 2024

The Cloud Frontier report is an extension of our commitment at simplyblock to delve deep into the evolving landscape of cloud infrastructure, a domain that is critical not only to our business but also to the broader tech ecosystem. As a startup specializing in cloud storage orchestration, we recognize that the cloud is the backbone of modern digital transformation, offering the scale, flexibility, and innovation required to thrive in today's competitive environment.

This report is intrinsically linked to our ongoing efforts through the Cloud Frontier podcast, where our co-founder and CEO, Rob Pankow , engages in insightful conversations with fellow founders and leaders shaping the future of cloud infrastructure. These discussions often uncover the growth trajectories and challenges faced by innovators in this space. The Cloud Frontier Report builds on these conversations, providing a data-driven analysis that contextualizes the trends and dynamics discussed in the podcast. To watch the latest episodes of Cloud Frontier, visit our?YouTube and Spotify pages.

1) How fast is the public cloud growing??

There is no doubt that the public cloud is here to stay - the three hyperscalers (AWS, Azure, and GCP)? dominate the market with 67% market share together (Source ). SaaS companies and their lucrative cloud business models began the adoption (the same SaaS companies used to also sell on cloud marketplaces; talk about stickiness!), but AI is accelerating it (Source ).

Cloud infrastructure service revenues were $79.1 billion in Q2 2024

• Up 22% or $14.1 billion from Q2 2023
• With the trailing twelve-month revenues reaching $297 billion
• Most of the market comprises public IaaS and PaaS services, which increased by 23% in Q2 2024 (Source )

Worldwide end-user spending on public cloud services is forecast to grow 20.4% to total $675.4 billion in 2024

• Up from $561 billion in 2023
• Generative AI and application modernization are driving this growth (Source )
• This number is expected to grow to $1.35 trillion in 2027 (Source )
• Cloud end-user spending refers to spending PaaS, SaaS and other Cloud Systems in addition to the infrastructure services (AWS, GCP, Azure, etc) mentioned above:

2) Who is leading the growth in the cloud?

It’s clear from this quarter's growth rates that positioning yourself to better service AI workloads leads to growth. AWS' growth is propelled by a rich ecosystem of ISVs and partners, providing choices for AI companies as they experiment and scale. Microsoft has been unable to keep pace with the demand in terms of infrastructure (data centers and servers) but intends to catch up in 2025 (Source ).?The GCP pitch has long been that it is better for AI companies, and it is evident due to its optimistic growth rate of 36% by Q4 2024 as it builds on its strengths in AI and its impressive ecosystem partnership with the likes of Anthropic and Workday (Source ).?

Microsoft Azure moves down from a 31% to 29% growth rate:

• Chief Financial Officer Amy Hood expects Azure growth to continue slowing down in Q3 2024, but the $19 Billion in capital expenditure focused on data centers and servers may help them to capitalize on the demand in the second half of 2025.
• A similar sentiment is shared by investor relations chief Brett Iverson, who states that Microsoft currently lacks sufficient capacity to fulfill customer demand for cloud and AI services (Source ).

Google Cloud sees impressive but expected growth from 28% to 29%

• At the end of last quarter, Google CEO Sundar Pichai forecasted a $12.5 Billion cloud revenue by Q4 2024, implying a growth rate of 36%.
• Google Cloud can grow at 29% despite growing revenues resulting from building on its company’s strengths in AI, Infrastructure, databases, cybersecurity, and analytics. (Source ) (Source )

To provide more context to the growth in the cloud, we can look at the net new revenue generated by AWS, GCP, and Azure in Q2 2024. The three hyperscalers added $10.9B in new revenue over the last 12 months, with the overall market growing 24% Y/Y.?

Some of the reasons for the uptick from the lows of 2023 could be that the cloud optimization phase is over, and customer wallets are reopening. Three products contributing rapidly to this growth of AWS are its Bedrock managed service, the SageMaker service, and Amazon Q, an assistant for software developers. In addition to this, Workday, which used to operate its own data center, is moving to the public cloud with GCP and AWS (Source ).

3) Bessemer: Cloud 100 companies are reaching Centaur status ($100M ARR) faster than ever

The Bessemer Cloud 100 report (Source ) gives us an insight into how Cloud companies are reaching Centaur status ($100M ARR) faster than recorded in 2016.?

As reported, it took 10 years on average for a Cloud 100 company to reach centaur status in 2016 compared to 7.8 years on average in 2024. For example, Wiz was founded in 2020 and hit $100M ARR in 18 months (Source ).

But wait, it gets even better for Cloud 100 AI companies that can reach centaur status in 6.3 years on average in 2024. For example, Anthropic, founded in 2021, reported in the middle of 2023 that it was generating $100M in ARR and is now projecting a $850M ARR by the end of 2024. (Source ).?

For Wiz , the general growth of public cloud adoption has been a major tailwind. Similarly, a recent BCG analysis indicated that while categories like server infrastructure and ERPs are seeing reduced spending, cloud services, and security infrastructure are seeing budgets increase by 26-33% (Source ). At the same time, Anthropic can attribute its phenomenal growth to the increased demand for AI products, which heavily depend upon the public cloud for its GPUs/TPUs to train, scale, and deploy AI systems.

4) How is AI accelerating demand for cloud services?

The developments in AI and LLMs are now the main forces behind the fast acceleration of cloud usage, a great relief from the slower growth rates in 2023. Building and implementing software in the cloud was deemed unconventional for a software founder twenty years ago. These days, almost all software and digital businesses function in a cloud-first environment. Hence, you can expect a strong preference for cloud usage with AI-native startups, verticalized AI solutions, or enterprises that wish to embed AI into their services/products moving forward. They all need reliable, scalable, and speedy storage/compute solutions.

Blackstone has $70B worth of data center investments in the pipeline

• According to Blackstone CEO, the current expectations are that there will be approximately US$1 trillion in capital expenditures in the United States over the next five years to build and facilitate new data centres, with another US$1 trillion in capital expenditures outside the United States. (Source )

Big 3 capex on Data Centers and infrastructure is rapidly increasing due to the AI wave

• Amazon spent $30.5 billion in capital expenditures, mostly building out AWS infrastructure capacity during the first half of the year, and expects to invest more during the remaining six months, SVP and CEO Brian Olsavsky said in the Q2 2024 earnings call.?

• Microsoft had a $19 billion capital expenditure bill for the three-month period ending June 30, the company’s EVP and CFO Amy Hood said Tuesday, during the company’s Q4 2024 earnings call. AI-related investments in Azure infrastructure and third-party data center leases accounted for nearly all of the spending.?
• Google spent $13 billion on technical infrastructure, including servers and data centers. (Source )

5) Nvidia’s role in supporting this capacity shift?

Intel had a bigger market capitalization than Nivida in 2020, but the pandemic turned the tables. The AI revolution began, which shifted Nvidia’s focus on gaming to the wider industry on the back of its GPUs which, as its name suggests, are better processing units than CPUs for image processing. However, these GPUs can also handle more complex computation requirements making them a match made in heaven for AI model training (Source ).

But what is Nvidia beyond GPUs? CEO Hensen Huang positions Nvidia as an AI foundry or a computing platform company due to its diverse offerings, including Nividia RTX, Nvidia DRIVE platform, and Nvidia DGX systems (Source ).

Q2 2024 data center revenue is 157% higher than Q2 2023

• Nvidia’s data center vertical seems to have gained more weightage than its gaming vertical starting Q1 2023, and this shift can be attributed to the increase in data center construction spending due to the urgent requirement for computing and storage, as show in the previous chart. In its Q2 2024 results, data centers contribute 87.6% to revenues which is $26.3B, up 15% from Q1 2024 and up 157% from Q2 2023.?
• Announced that the combination of NVIDIA H200 Tensor Core and NVIDIA Blackwell architecture B200 Tensor Core processors swept the latest industry-standard MLPerf benchmark results for inference.

Revenue jumped 122% year over year to $30 billion

• Q2 2024 (calendar year) has been another monumental period for Nvidia, as they not only beat their revenue expectations of $28.7B but also grew their revenues by 122% YoY. They became the world's most valuable company for a while in June 2024, reaching the $3.34 trillion mark.
• The company also projects revenue for the current quarter to reach $32.5 billion

Is Nvidia a Monopoly?

• The DOJ opened an investigation against Nvidia due its market dominance in the chip making industry, calling it a “chip gatekeeper” (Source ).
• Today’s revenue of absolutely zooming past wall streets revenue expectations doesn’t help their case.

6) What is the pace of cloud adoption??

Cloud adoption cannot be seen in a silo, as the adoption of SaaS and AI applications into the daily lives of Enterprises and SMEs is crucial. Macro trends must be considered here, such as a population crisis demanding greater productivity with shrinking human capital, automation of repetitive tasks, and a greater focus on remote work setups?(Source ).

Cloud technologies currently dominate spending across platforms, applications, and infrastructure

• The three biggest sectors—retail, software and information services, and banking—will spend a combined $190 billion on public cloud services by the year 2024.?
• Moreover, capital markets, life sciences, and insurance are expected to be the fastest-growing sectors, each with a CAGR of over 23% through 2028 (Source ).

7) Simplyblock 50 highlight: Datadog

Simplyblock 50 companies are a grouping of successful companies that are a part of the wider cloud economy. Each company contributes through varied business models, products, and services. However, they all provide insight into how the cloud economy operates and is developing each day. At simplyblock , we aim to keep a close eye on these companies (Datadog being one of them) and give you, the readers, a glimpse into their performance. The idea is to understand the scale at which the market grows on a company level and eventually infer what the future holds. We will publish the complete list of Simplyblock 50 companies in our next report, which you should look out for.

Announcement of Datadog Kubernetes Autoscaling

• A set of capabilities that intelligently automates resource optimization and can automatically scale customers' Kubernetes environments based on real-time and historical utilization metrics.

Released its State of Cloud Costs 2024 report

• The report found organizations that use graphics processing unit (GPU) instances have increased their average spending on those instances by 40% in the last year.

Financials

• Second quarter revenue grew 27% year-over-year to $645 million
• Strong growth of larger customers, with about 3,390 $100k+ ARR customers, up from about 2,990 a year ago
• Full Year 2024 Outlook: Revenue between $2.62 billion and $2.63 billion

Closing note

The latest Cloud Frontier report sheds light on the transformative power of AI within the cloud infrastructure landscape. It highlights not only the rapid growth of the sector but also the strategic shifts that are redefining the industry. As AI continues to fuel an unprecedented demand for scalable, high-performance cloud solutions - leading providers are investing substantially to stay competitive in this ever-evolving market. Adopting cloud technology is no longer a choice for businesses across all industries - it's a vital component for remaining competitive in our increasingly digital world.

At simplyblock , we're dedicated to keeping you informed and empowered as we explore and shape the future of cloud infrastructure through our insights and innovations.

If you found this report valuable, consider subscribing to our quarterly updates. Also, make sure to take advantage of the Cloud Frontier Podcast hosted by our CEO, Rob Pankow.?

You can find it on YouTube , Spotify , Apple Podcast , and Twitter .

For those interested in diving deeper into the technical aspects of the cloud economy—covering topics like DevOps, Platform Engineering, Kubernetes, DataOps, and more—be sure to check out our Cloud Commute Podcast, hosted by our Chief Developer Advocate, Chris Engelbert. You can find it on our website , Youtube , Spotify , Apple Podcast , and Twitter .?

Additionally, you can browse our previous blogs to stay updated with the latest trends and insights in cloud technology.