AI demand is starting to drive cloud spending

TODAY’S STORY

Investors have been waiting for AI demand to drive cloud spending. We’re finally starting to see strong indicators:

• In back-to-back earning calls, Alphabet indicated generative AI is driving more business for Google Cloud

• Amazon CEO Andy Jassy shared that AWS has a “multi-billion dollar” AI business, which was seeing “triple-digit” revenue growth

• Microsoft’s CFO Amy Hood said, “Demand continues to be higher than our available capacity” regarding Azure AI services

However, because these cloud providers don’t break down their revenue by workload, it’s challenging to ascertain precisely how big AI is for them.

Also, while AI demand is starting to drive cloud spending, it doesn’t mean it will drive profits. Investors are still trying to get more evidence that these companies will be able to efficiently recoup the massive outlay of capital expenditures (Amazon expects to spend ~$75Bn this year) needed for infrastructure to deliver AI services (i.e., hypergrowth data centers, networking gear, hardware, etc.).

Investors are proceeding with caution until the missing details in the equation become clearer.

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