Key Highlights

1. In the third quarter of 2023, the collective cloud earnings generated by the prominent quartet of cloud service providers—AWS, Microsoft, Google, and Oracle—summed up to a substantial USD 57.2 billion, showcasing a YoY growth of approximately 17.7%. This impressive growth was primarily propelled by increased cloud revenue contributions from each of these key players.
2. Cloud revenue accounted for an average of 19.8% of the total revenues of these four industry leaders in Q3-2023, a notable rise from the 18.9% observed in Q3-2022. This shift underscores the ever-increasing significance of the cloud sector within their broader business portfolios.
3. Cloud revenue growth rates continue to be impacted owing to the rapidly changing nature of customer requirements, which implies that the past or current cloud service provider might not be the preferred choice vendor for their future requirements.
   1. Furthermore, the current growth rates and revenue estimates offer insight into the customer’s confidence in the future potential of these cloud providers. This is particularly relevant as companies continue to embrace digitization, a trend further accelerated by the adoption of Generative AI.
4. Microsoft, Google and Oracle have made initial strong inroads to grab customer’s attention to be their preferred partners in their digital transformation roadmap complimented with potential usage of Generative AI.
   1. For instance, Microsoft partnered with G42, whereas Google has partnership with Netcracker, Exabeam, Opentext. Oracle indicated that AI development companies having signed contracts for purchasing USD 4bn+ of capacity in its Oracle Gen2 Cloud.
   2. Google and Microsoft also have partnership with Nvidia to leverage its hardware capabilities to boost its GenAI capabilities further.
5. The growth rates of cloud revenue have tempered for companies such as AWS, Microsoft, and Google, as their revenue bases continue to expand, and they contend with the uncertainty of the global economic landscape, which can potentially impact their earnings.
6. AWS cloud revenue increased 12.3% (YoY basis) in Q3-2023 to reach ~USD 23.1bn. However, this growth was relatively flat as compared to YoY growth of 12.2% in Q2-2023, but a bit lower as compared 15.8% in Q1-2023, as the companies continue to rethink about their IT spending as they now increasingly focus on cost optimisation.
7. In Q3-2023, Microsoft’s Intelligent Cloud (MIC), which encompasses Azure and related services, achieved a remarkable revenue growth of 19.4% YoY, totalling USD 24.3 billion. This growth outpaced the year-on-year growth rates of 16.3% in Q1-2023 and 15.3% in Q2-2023, driven by increased demand for consumption-based services such as server products, Azure, and various other cloud offerings.
8. Google Cloud’s revenue in Q3-2023 reached USD 8.4 billion, marking a substantial 22.5% year-on-year increase, primarily attributable to the growth of its Google Cloud Platform and Google Workspace offerings. Nevertheless, this growth rate was somewhat lower than the 28.1% in Q1-2023 and 28% in Q2-2023.
9. The Oracle Cloud Infrastructure (IaaS) segment demonstrated robust growth, expanding by approximately 66% year-on-year and achieving a revenue of USD 1.5 billion in Q3-2023.
10. Cloud providers continue to forge partnerships and expand their geographic presence to meet the customer demand and sustain competitive edge. For instance,
    1. AWS introduced a Local Zone in Phoenix, Arizona and a new cloud region cloud region in Israel (Tel Aviv).
    2. Google Cloud launched its second cloud region in Germany (12^th in Europe), to facilitate shorter response times for data transfer.
    3. Oracle launched Oracle Cloud for Australian Government and Defense in Canberra and further intends to activate the cloud region in Colombia and Chile soon.

Exhibit 1: Revenue Growth rate (YoY) of Cloud service providers, (Q1 2023-Q3 2023)

Exhibit 2: Key Financial metrics of Cloud service providers, (Q3 2022- Q3 2023)

Cloud Infrastructure providers

A. Amazon Web Services (AWS)

Overview

1. AWS continues to be a substantial contributor to the overall company revenue in Q3-2023 accounting for 16.1% of the overall revenue
   1. In Q3-2023, AWS revenue grew by 12.3% (YoY basis) to reach USD 23.1bn
   2. Operating margin increased by 3.9 percentage points (YoY basis) to reach 30.3% in Q3-2023, driven by enhanced sales and cost structure efficiency, partially counterbalanced by expenditures on technology infrastructure, which were primarily driven by supplementary investments to bolster AWS’s business expansion.
2. AWS’s revenue growth rate has been slowing down in recent quarters as larger enterprises re-evaluate their IT spending priorities, with a growing emphasis on cost optimization. Amazon’s CFO, Brian Olsavsky, also noted an increased participation of companies in cost optimization initiatives, albeit at a reduced pace compared to earlier, and the company anticipates an influx of new workloads in the near future.
3. In Sep 2023, Amazon announced plans to invest USD 4.0 bn in Anthropic, which would leverage AWS data centres for its software and adopt in-house data centre chips for model raining, powering chatbots and other tools.

AWS Global Footprint

1. The AWS Cloud has 102 Availability Zones across 32 geographic regions worldwide. It also has plans have 15 additional Availability Zones globally and 5 more AWS regions in Canada, Germany, New Zealand, Malaysia, and Thailand.
2. AWS Local Zones are presently available in 16 metropolitan areas within the US, with plans to further expand into 33 additional cities spanning 27 countries. These expansion targets include locations in Argentina, Australia, Austria, Belgium, Brazil, Canada, Chile, Colombia, Czech Republic, Denmark, Finland, Germany, Greece, India, Kenya, Mexico, Netherlands, New Zealand, Norway, Peru, Philippines, Poland, Portugal, South Africa, Taiwan, Thailand, and Vietnam.

Exhibit 3: AWS Cloud Global capabilities

Exhibit 4: AWS Cloud – Key launches and announcements

AWS continues to expand its cloud presence globally with significant capability enhancements across, US, Singapore, and Israel during Q3-2023.

Key Product initiatives

Key Partnerships

Key Contract wins

B. Microsoft Intelligent Cloud (MIC)

Overview

1. The MIC segment remains a primary driver of the company’s revenue, contributing 42.9% of the total earnings in Q3-2023, marking a 2.3 percentage point increase on YoY basis.
2. In Q3-2023, MIC revenue experienced a robust 19.4% YoY growth, reaching USD 24.3 billion. This growth was propelled by increased demand for consumption-based services, including server products, Azure, and various other cloud services.
3. Server products and cloud services revenue increased by USD 3.9bn (~21.3% YoY basis) to reach USD 22.3bn, driven by Azure and other cloud services.
   1. Azure and other cloud services revenue grew 29% driven by growth in its consumption-based services.
   2. Server products revenue increased 2% driven by demand for Windows Server and SQL Server running in multi-cloud environments, offset in part by continued customer shift to cloud offerings.
4. Microsoft’s management has provided a steady outlook for Q4-2023, projecting MIC revenue to fall within the range of USD 25.1 billion to USD 25.4 billion, while anticipating a 26% to 27% growth in constant currency for Azure and other cloud services revenue.
5. Growth in Azure segment reflects the cloud optimisation trends in addition to growing demand for AI services. This aligns with recent industry trend of emerging slowdown in cloud spend optimisation, which is likely to result in Azure future growth outlook complimenting the emerging growth in AI-related opportunities.
   1. A growing clientele is embracing cloud-based Generative AI tools, further enriched by software from the Microsoft-affiliated startup, OpenAI. The number of customers for Azure OpenAI service reached 18,000 in Q3-2023 as compared to 11,000 in Q2-2023.

Microsoft Cloud Global Footprint

MIC has presence across 61+ regions and its Azure infrastructure comprises of 300+ physical datacentres.

Exhibit 5: Microsoft Cloud Global capabilities

Key Product initiatives

Key Partnerships

Key Contract wins

C. Google Cloud

Overview

1. Google Cloud revenue contribution to the overall revenue continues to grow in 2023 and has accounted for >10% in 2023 as compared to single digit contribution in 2022.
   1. It accounted for 11.0% of the overall revenue in Q3-2023 (growth of 1.1 percentage points on YoY basis) and continues to grow since FY 2019 whereby it accounted for 5.5% on annual basis.
2. Google Cloud revenue reached USD 8.4bn in Q3-2023 (growth of 22.5% on YoY basis). However, the revenue growth slowed down as compared to the previous quarters, where it witnessed a YoY revenue growth of 28.1% and 28.0% in Q1-2023 and Q2-2023 respectively.
   1. Growth was primarily driven by Google Cloud Platform followed by Google Workspace offerings. Google Cloud’s infrastructure and platform services were the largest drivers of growth in Google Cloud Platform.
   2. However, it reported an operating profit of USD 266m in Q3-2023, as compared to operating losses of USD 590m and USD 440m in Q2-2023 and Q3-20223 respectively. The increase in operating income was primarily driven by revenue growth, which was partially offset by an increase in compensation expenses.
3. Google is increasing its emphasis on providing a secure cloud infrastructure, due to its growing cybersecurity efforts.
   1. Additionally, its effort to integrate data lakes, data warehouses, data governance and advanced machine learning into a single platform is further expected to bolster its prospects in the data cloud market.
4. With launch of OpenAI’s ChatGPT chatbot last year, Google has been racing to add generative AI technology to more products and is testing it within core search
   1. Alphabet is moving to integrate AI technology into its products and stands to benefit from its AI trading service.

Google Cloud Global Footprint

1. Currently, it operates in 39 regions with 118 Zones across 200+ countries.
2. Plans to operate in new regions including Kingdom of Saudi Arabia, Mexico, Malaysia, Thailand, New Zealand, Greece, Norway, South Africa, Austria, and Sweden.

Exhibit 6: Google Cloud Global capabilities

Exhibit 7: Google Cloud – Key launches and announcements

During Q3-2023, Google strengthened its cloud positioning in the European region, by opening its second cloud region in Germany, in addition to its Frankfurt cloud region.

Key Product initiatives

Key Partnerships

Key Contract wins

D. Oracle Cloud

Overview

1. Oracle Cloud Infrastructure segment displayed robust growth and the revenue reached USD 1.5bn (up by 66% YoY basis) as compared to 76% YoY growth in Q2-2023.
   1. Additionally, Oracle Infrastructure Cloud (IaaS) segment contribution to the overall revenue reached 12% in Q3-2023 as against 7.9% in Q3-2022, driven by relatively strong growth rate as compared to overall revenue.
2. Oracle Cloud revenue growth continues to be impacted, as businesses continue to realign their digitalisation plans. However, Oracle Cloud continues to build momentum and grow its revenue from the cloud segment.
   1. Increased adoption of AI is likely to have a positive impact on its Cloud infrastructure business, as advancements being made in its networking technology are more suited to take on AI workloads.
3. Oracle Cloud indicated that AI development companies have signed contracts for purchasing USD 4.0 bn+ of capacity in its Oracle Gen2 Cloud, which is twice the booking value as compared to the previous quarter.
   1. The company is focussing on the rollout of Generative AI capabilities across its enterprise and industry applications, cloud infrastructure, databases.
   2. Additionally, it is also striving to improvise its technology’s core functions for support efficiency and cost-effectiveness advancements to meet customer requirements to build models.
4. Despite the decline in revenue growth rates (YoY basis) as compared to the last two quarters, Oracle’s CEO Safra Catz indicated that the company remains committed of achieving a minimum revenue of USD 56bn by FY2026.
   1. For Q4-2023, Oracle management expects the total revenue to grow between 5%-7% (3%-5% in constant currency), with total cloud revenue (excluding Cerner) estimated to grow between 29%-31%.

Oracle Cloud Global Footprint

1. Oracle offers 100+ cloud services across 46 Public cloud regions across 23 countries (including 4 cloud regions in LATAM).
   1. Also, has multiple additional dedicated regions and US national security regions, to cater to the requirements of its customers.

Exhibit 8: Oracle Cloud Global capabilities

Exhibit 9: Oracle Cloud – Key launches and announcements

1. During Q3-2023, Oracle continues to strengthen its cloud presence globally.
2. Additionally, it enhanced the features and applications available on its Oracle Cloud Infrastructure (OCI), by introducing NetSuite applications on its cloud regions in Toronto and Montreal

Key Product initiatives

Key Partnerships

Key Contract wins

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Research Methodology and Assumptions

1. Data collection has been done basis of secondary research in reference to the information provided by the Cloud provider’s website and financial reports.
2. The performance of the cloud service providers in Q3-2023 is indicative of their overall performance and can be used to predict future trends in the market.
3. The report covers the second quarter of 2023 for each of the four cloud service providers. Notably, Oracle’s fiscal year concludes in May. To align their reporting cycle with the calendar year, Q1 FY2024 is considered equivalent to Q3 CY2023.
4. Revenue reporting for Oracle Cloud (comprising of IaaS and SaaS) has been realigned from Q3-2023 onwards and now includes only Oracle Infrastructure Cloud (IaaS) revenue.
5. Revenue figures for the previous quarter may not align precisely with the corresponding figures in the previous quarterly report, primarily due to the focus on Microsoft Intelligent Cloud (MIC), which encompasses Azure and other associated services.
6. In the analysis, we have focused on the Google Cloud Platform (GCP), which is a part of Google’s overall revenue reported under Google Cloud. Google Cloud encompasses Google Workspace, GCP, data and analytics platforms, infrastructure, collaboration tools, and other enterprise cloud services. It is worth noting that Google does not report GCP’s revenue separately, but rather as part of the overall Google Cloud segment.

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