Fueled by generative AI, end user spending on public cloud services is set to rise by over 20% in 2024.

Public cloud spending by end-users is on the rise. According to Gartner, the amount spent worldwide by end users on public cloud services will exceed $675 billion in 2024. This represents a sizable increase of 20.4% over 2023, when global spending totalled $561 billion. 

Gartner analysts identified the trend late in 2023, predicting strong growth in public cloud spending. Sid Nag, Vice President Analyst at Gartner said in a release that he expects “public cloud end-user spending to eclipse the one trillion dollar mark before the end of this decade.” He attributes the growth to the mass adoption of generative artificial intelligence (AI). 

Generative AI driving public cloud spend

According to Gartner, widespread enthusiasm among companies in multiple industries for generative AI is behind the distinct up-tick in public cloud spending. “The continued growth we expect to see in public cloud spending can be largely attributed to GenAI due to the continued creation of general-purpose foundation models and the ramp up to delivering GenAI-enabled applications at scale,” he added. 

Digital transformation and “application modernisation” efforts were also highlighted as being a major driver of cloud budget growth. 

Infrastructure-as-a-service supporting AI leads cloud growth

All segments of the cloud market are expected to grow this year. However, infrastructure-as-a-service (IaaS) is forecast to experience the highest end-user spending growth at 25.6%, followed by platform-as-a-service at 20.6% 

“IaaS continues at a robust growth rate that is reflective of the GenAI revolution that is underway,” said Nag. “The need for infrastructure to undertake AI model training, inferencing and fine tuning has only been growing and will continue to grow exponentially and have a direct effect on IaaS consumption.”

Nevertheless, despite strong IaaS growth, software-as-a-service (SaaS) remains the largest segment of the public cloud market. SaaS spending is projected to grow 20% to total $247.2 billion in 2024. Nag added that “Organisations continue to increase their usage of cloud for specific use cases such as AI, machine learning, Internet of Things and big data which is driving this SaaS growth.”

The strong public cloud growth Gartner predicts is largely reliant on the continued investment and adoption of generative AI. 

Since the launch of intelligent chatbots like Chat-GPT, and AI image generators like MIjourney in 2022, investment exploded. Funding for generative AI firms increased nearly eightfold last year, rising to $25.2 billion in 2023. 

Generative AI accounted for more than one-quarter of all AI-related private investment in 2023. This is largely tied to the infrastructural demands the technology places on servers and processing units used to run it. It’s estimated that roughly 13% of Microsoft’s digital infrastructure spending was specifically for generative AI last year.

Can the generative AI boom last? 

However, some have drawn parallels between frenzied generative AI spending and the dot com bubble. The collapse of the software market in 2000 resulted in the Nasdaq dropping by 77% drop. In addition to billions of dollars lost, the bubble’s collapse saw multiple companies close up, and widespread redundancies. “Generative AI turns out to be great at spending money, but not at producing returns on investment,” John Naughton, an internet historian  and professor at the Open University, points out. “At some stage a bubble gets punctured and a rapid downward curve begins as people frantically try to get out while they can.” Naughton stresses that, while it isn’t yet clear what will trigger the AI bubble to burst, there are multiple stressors that could push the sector over the edge. 

“It could be that governments eventually tire of having uncontrollable corporate behemoths running loose with investors’ money. Or that shareholders come to the same conclusion,” he speculates. “Or that it finally dawns on us that AI technology is an environmental disaster in the making; the planet cannot be paved with data centres.” 

For now, however, generative AI spending is on the rise, and bringing public cloud spending with it. “Cloud has become essentially indispensable,” said Nag in a Gartner release last year. “However, that doesn’t mean cloud innovation can stop or even slow.”

  • Data & AI
  • Infrastructure & Cloud

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