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The Three Reasons Why Cloud Workloads Will Accelerate in 2024 That All Investors Should Know

January 30, 2024

If you missed Buckle Up, AI Revolution Is Gaining Momentum, here is the LINK.

Cloud workloads will accelerate in 2024.  Here are 3 reasons why:

1.   Better Macro

2.   End of workload optimization

3.   Rise Of AI investments

Let’s dive into each one!

  1. Better Macro:

After two years of caution, Corporate sentiment is improving.  Business leaders are pivoting from ‘conserve’ to ‘invest’.  In 2024, this will be reflected in higher Technology spend.  While the Covid bubble has burst, digital transformation is still top of mind for most business leaders.  Modernizing the technology stack is one of the first investments any business needs to make to accelerate the velocity of decision-making. Software and Security investments are the most top of mind for executives.

Source: Jefferies

  1. End of workload optimization

When capital was plentiful, every business invested in the cloud without constraints.  Cloud-native start-ups flush with cash invested for ever-accelerating growth.  Traditional businesses also accelerated their Cloud transformation strategy. 

Decelerating growth, significantly lower valuations, and lack of funding visibility meant every cost item had to be examined.  Workload optimization was the easiest way to recalibrate IT budgets as these were monthly contracts.  Application teams downsized server instances, while data teams optimized cluster sizing and query frequency.  This affected the utilization of the entire cloud stack from infrastructure, data, and application usage.

However, after 6 quarters of cost pruning, workload optimization has run its course. 

Andy Jazzy, Amazon’s CEO has this to say on their 3Q Call in October:

AWS's year-over-year growth rate continued to stabilize in Q3 and while we still saw elevated cost optimization relative to a year ago, this continued to attenuate as more companies transition to deploying net new workloads. Companies have moved more slowly in an uncertain economy in 2023 to complete deals, but we're seeing the pace and volume of closed deals pick up and we're encouraged by the strong last couple of months of new deals signed.

Satya Nadella, Microsoft’s CEO also made comments on workload optimization last quarter:

workloads start, then workloads get optimized, and then new workloads start, and that cycle continues. We'll lap some of those optimization cycles that were extreme perhaps in the second half of our fiscal.

I will update the Big 3 Cloud Growth chart after the 4Q results. 

3. Rise of AI Investments

While most businesses are still unsure about their approach to AI, the debate is when and how not if.  Utilizing the hyperscalers is the easiest way for most businesses to start their AI investments.  Hyperscalers provide the plug-and-play solution of the entire AI stack starting with compute (servers), GPUs, training and inference models, ready-to-use data stacks, and AI agents.

Microsoft is already benefiting from its Open AI investments. 

“The thing for us that's unique and different is new workload starts around AI.”  - Satya Nadella

Source: Jefferies

The hyperscalers report this week. I have my popcorn ready!

Thanks for reading!