How the cloud industry is benefitting from the generative AI boom

The rapid evolution of generative artificial intelligence has sparked a surge in the global cloud industry, which is poised to draw substantial investments from technology funds in the coming months, according to industry analysts.

Due to its flexibility and efficiency, analysts also anticipate a jump in novel applications of cloud technology. These span across personalised healthcare, climate modelling and prediction, immersive virtual experiences, autonomous vehicles, cyber security and AI-driven creative collaborations.

“It [cloud] has now become an even bigger deal as tech companies will clearly need more plasticity in terms of handling and expanding their data offerings, both internally and to their customers,” Thomas Monteiro, senior analyst at Investing.com, says.

“Big funds that are heavily investing in tech this year need to make sure they are betting on companies that offer competitive cloud advantages … regardless of whether these will bring profits or not … they need to show their clients they are not missing the boat.”

In the cloud industry, businesses are charged solely for the specific services or resources they utilise during a given time frame.

Shifting their operations to a specialised cloud system provided by the dominant industry players such as Oracle, Amazon Web Services, or SAP is a more cost-effective choice for businesses compared to establishing their own infrastructure of servers, hardware, and security networks, experts say.

This transition significantly reduces the overall cost of ownership.

“Cloud has become an imperative now … it is making the adoption of emerging technologies such as gen AI, intelligent automation and various other next-gen technologies easy,” says Harish Dunakhe, senior research director for software and cloud at International Data Corporation.

“Businesses are also demanding various functionalities that are exclusively available on cloud. This is because, their customers – millennials and GenZ – are pushing them to deliver more value at less price and in less time.”

Globally, the cloud computing market is booming. It is expected to jump 20 per cent yearly to reach $677.95 billion this year as businesses expedite the pace of their digital transformation, according to researcher Fortune Business Insights. It is predicted to reach more than $2.43 trillion by 2030.

“The benefits of the cloud are numerous and tangible, which is why businesses are increasingly embracing it … it is enabling the delivery of cutting-edge technologies like AI and machine learning, as well as user-friendly software solutions such as collaboration tools,” says Jad Haddad, head of digital at Oliver Wyman in India, the Middle East and Africa.

“Moreover, as organisations prioritise security, the cloud offers robust cyber security measures to address the growing concerns in this area,” he adds.

But organisations must ensure their applications are cloud-ready before they make the shift to thwart any slowdown or shutdown of services.

“Increasing network speed and more democratic access to cloud storage have expedited the cloud migration … the next technology era – whether you call it metaverse or spatial computing – will be fully dependent on cloud infrastructure to survive,” says Rolf Illenberger, founder and managing director of software development company VRdirect.

Despite the widespread utilisation of cloud computing, analysts see more scope for growth.

“While many organisations have started to seize the technical advantages of cloud in some applications, far fewer have unlocked the full potential of cloud in support of business transformation,” says Arun Chandrasekaran, vice president at Gartner.

“Organisations are also discovering that harnessing cloud’s strengths at scale requires a more comprehensive [and] business-aligned cloud strategy … CIOs need to master three critical cloud-enabling disciplines – strategise and innovate, mobilise and migrate, and govern and secure.”

Competition in the industry is also intensifying as companies are rolling out new AI-driven cloud solutions to attract more customers.

Amazon-owned AWS, which launched faster chips and new generative AI capabilities last month to boost its cloud offerings, had a 32 per cent market share as of the second quarter of this year (down from 34 per cent a year ago), according to Statista.

It was followed by Microsoft Azure (22 per cent), Google Cloud (11 per cent) and Alibaba Cloud (4 per cent).

Meanwhile, a cohort of start-ups, including Databricks, Snowflake, and HashiCorp, is also significantly shaking up the cloud market. They could either complement big players or pose a threat, depending on their offering.

“Top cloud companies have significantly extended their leadership and built strong moats. At the same time, there are start-ups that have scaled and have been successful … as CIOs increasingly seek multi-cloud offerings and deployments,” Mr Chandrasekaran says.

The start-ups do not pose a threat to established tech players but instead present a “win-win-win situation”, according to Mr Dunakhe.

“Cloud start-ups would trigger the consumption of cloud infrastructure and create more opportunities for cloud-based development platforms.”

However, lack of capital could pose a potential hurdle.

“Companies with more cash on hand, more investors betting on them, and a better innovation culture are more likely to succeed as they will keep on having the upper hand in hiring talent and expanding offerings towards the next innovation,” Mr Monteiro says.

Mr Illenberger adds: “Microsoft and AWS own the cloud market … the services they provide have become the backbone of computing world. Start-ups using their infrastructure will only strengthen their dominant market position.”

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