Tech Powerhouses Reap Gains From AI Cloud Computing Boom

Three of the Wall Street's heavyweight technology firms have reported better-than-expected sales at their cloud computing units in recent days, as interest in artificial intelligence drives a rebound in spending by corporate customers.

Growth in the $270 billion cloud infrastructure market, a cash engine for Amazon.com, Microsoft and Alphabet, gives the clearest sign yet that AI investment is bearing fruit after investors drove those stocks to record highs, thanks to optimism about the emerging technology.

Amazon, the last of trio to report on Tuesday, said its cloud computing arm AWS grew 17 percent in the January-to-March period, above Wall Street's 15 percent growth estimate, and hit a $100 billion annual run-rate for the first time.

"Looking across AWS, Microsoft Azure and Google Cloud, it is clear that two things are happening simultaneously - AI is contributing to growth, but also the rest of cloud spending is accelerating," said D.A. Davidson & Co analyst Gil Luria.

For several years cloud infrastructure providers enjoyed growth rates as high as 60 percent and demand shot up during the COVID-19 pandemic as more businesses moved online. However, firms had to realign expectation last year as customer pulled back spends in an increasingly challenging business environment.

"The number of Azure AI customers continues to grow and average spend continues to increase," Microsoft CEO Satya Nadella said on the company earnings call, adding that more than 65 percent of the Fortune 500 companies were Azure OpenAI Service customers.    

"There is an inevitable and continuous migration of workloads to the cloud and consolidation of IT spending going towards large platforms, including the hyperscalers," said RBC Capital Markets analyst Rishi Jaluria.