The cloud services market—which is made up of services providing infrastructure and platforms that are hosted by third-party companies and made available to users via the internet—saw strong, steady growth in Q3 2024.

The rankings of the top three cloud vendors—AWS, Microsoft Azure, and Google Cloud—remained stable from the previous quarter, with these providers together accounting for 64% of total customer expenditure. Total combined spending with these providers also grew by 26% year-on-year, and all three reported sequential growth.

Market leader AWS maintained a year-on-year growth rate of 19%, which is consistent with the previous quarter, but was outpaced by both Microsoft (33%) and Google Cloud (36%).

Customer investment in the hyperscalers’ artificial intelligence offerings fueled growth, prompting leading cloud vendors to escalate their investments in AI. All three cloud hyperscalers reported positive returns on their AI investments, which have begun to contribute to their overall cloud business performance.

The analysis firm highlighted that with the increasing adoption of AI technologies, the demand for high-performance computing and storage continues to rise, putting pressure on cloud providers to expand their infrastructure.

In response, leading cloud providers are now prioritising large-scale investment in next-gen AI infrastructure. And to mitigate the risks associated with under-investment, they have adopted over-investment strategies to ensure their ability to scale offerings in line with customer needs.

“Continued substantial expenditure will present new challenges, requiring cloud vendors to carefully balance their investments in AI with the cost discipline needed to fund these initiatives,” explained Rachel Brindley, senior director at Canalys.

“While companies should invest sufficiently in AI to capitalize on technological growth, they must also exercise caution to avoid overspending or inefficient resource allocation. Ensuring the sustainability of these investments over time will be vital to maintaining long-term financial health and competitive advantage.”

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“On the other hand, the three leading cloud providers are also expediting the update and iteration of their AI foundational models, continuously expanding their associated product portfolios,” noted Yi Zhang, analyst at Canalys.

“As these AI foundational models mature, cloud providers are focused on leveraging their enhanced capabilities to empower a broader range of core products and services.

“By integrating these advanced models into their existing offerings, they aim to enhance functionality, improve performance and increase user engagement across their platforms, thereby unlocking new revenue streams.”