Hyperscale Cloud Growth Pushes Through Macroeconomic Challenges

The evolving landscape of hyperscale clouds amidst geopolitical and macroeconomic headwinds

The hyperscale cloud sector continues to push forward in the face of various macroeconomic and geopolitical headwinds, and by the end of 2022, it is projected to reach close to 160 billion USD. Subsequently, over the next five years, a CAGR of  around 34.3 percent is expected, which would increase the revenue to 692.7 billion USD in 2027. The acceleration seen in the sector in 2021 has come to a halt, and the recent quarter saw more slowing in overall growth rates. This sluggishness has been in place for the Chinese-based cloud companies over several quarters, and now the big three US-based clouds have seen some slowing as well.

Is the hyperscale cloud sector changing course?

All the fundamental trend lines are still in motion, and scale is still being realized, with bottom line numbers firmly in place and trending in the right direction. But there is a realignment happening in the public cloud sector, and this shift has led us to shorten the list of hyperscale clouds that we are tracking at Structure Research from nine to seven. IBM Cloud no longer shares the characteristics of a hyperscale platform, and Kingsoft Cloud in China has basically failed to launch, especially outside China. Dropping these two has reduced the overall size of the market slightly since our last projection, although we do still have the sector growing at a five-year CAGR of around 34.3 percent through 2027. The market continues to be worth close to 160 billion USD in annual revenue, after the adjustment in our tracking.

Hyperscale cloud remains positioned for sustained long-term growth. Expansion activity is steady and becoming increasingly global, while the drivers of growth are progressively coming from consumption-based uptake in new products and services. There continues to be movement away from raw compute and storage, and the sector is now more of a competition between tools, data, and performance. The biggest three hyperscale platforms in the world continue to grow, but they have tapered off noticeably in the recent quarter as macroeconomic weakness, geopolitics, and the general uncertainty in the global economy take their toll.

Amazon Web Services (AWS)

AWS did have another big quarter, but its growth rate dropped to 33.2 percent y/y. On a six-month basis, AWS grew at 34.8 percent y/y, which is also down from the performance levels seen in 2021 (when it hit nearly 40 percent y/y quarterly growth rate). At this level of scale, this tailing-off is obviously nothing to be concerned about, and AWS still exited Q2 2022 at an annual revenue run rate of around $79 billion USD.

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