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The emergence of generative artificial intelligence (AI) has paved the way for significant advancements in the cloud computing industry. The year 2023 is expected to witness a surge in cloud revenue, driven primarily by hyperscalers the biggest players in the cloud market. With their vast computational power and resources, hyperscalers are well-positioned to leverage the potential of generative AI and drive innovation in cloud-based services.

Gartner predicts that by 2026, 75% of organizations will adopt a digital transformation model that is centered on cloud technology as the fundamental underlying platform.

It also forecasts the worldwide spending by end-users on public cloud services to reach $597.3 billion in 2023. This is a 21.7% increase from $491 billion in 2022. The growth in cloud computing is driving the next phase of digital business as companies strive for disruption through innovative technologies.

All segments of the cloud market are expected to see growth in 2023, with infrastructure-as-a-service (IaaS) forecasted to have the highest end-user spending growth at 30.9%, followed by platform-as-a-service (PaaS) at 24.1%. This growth in spending is expected to occur amid ongoing economic turbulence that is compelling many industries, including Big Tech, to exercise caution when allocating funds.

The growth of IaaS in the upcoming phase will be driven by factors such as customer experience, digital and business outcomes, and the virtual-first world. Technologies that facilitate closer and real-time interaction with customers, such as chatbots and digital twins, rely on cloud infrastructure and platform services to meet the increasing demand for computing and storage power.

Although cloud infrastructure and platform services are driving the highest spending growth, software-as-a-service (SaaS) remains the largest segment of the cloud market in terms of end-user spending. It is projected to grow 17.9% and reach a total of $197 billion in 2023.

Enterprises are increasingly investing in emerging technologies such as generative AI, Web3, and the metaverse, attracted by the benefits these technologies offer, such as streamlining business processes and creating novel customer engagement experiences. As these technologies are well-suited to public cloud architecture, hyperscalers are ideally placed to benefit.

Gartners VP analyst, Sid Nag, notes that generative AI, in particular, is supported by large language models that require high-performance and scalable computing capabilities to process data in real-time. As a result, cloud hyperscalers offer the ideal solution and platform for such applications. Many of the key players in the generative AI space are cloud hyperscalers.

While hyperscalers dominate the technology substrate of cloud computing, the leadership of the business application layer is more fragmented. Providers are now facing growing demands to redesign their SaaS offerings to enhance productivity and utilize cloud-native capabilities, embedded AI, and composability. This is especially true as budgets are now being driven and owned by business technologists. The resulting change is likely to ignite a wave of innovation and replacement in the cloud platform and application markets.

Source: Gartner

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Investments in AI to drive cloud spending in 2023 - Wire19