Cloud infrastructure market hits $180B run rate in Q3, as even chip shortages can't slow it down

The Big Three cloud infrastructure vendors -- Amazon, Microsoft and Google -- all reported earnings this week. As you might expect, they did just fine with a growing market that passed $45 billion worldwide, good for a mind-boggling $180 billion run rate and trailing 12 month revenue of $164 billion. Revenue grew 37% overall in the quarter, according to Synergy Research.

The question is can these vendors stay ahead of the chip shortages that are having an impact across the entire technology supply chain from smart phones to computers?

Let's start with the top three vendors, who accounted for 70% of the market share this quarter. Amazon led the way once again, and while its market share percentage held steady, as it has for years at 33%, revenue grew at a remarkable 39%, an increase of 2% from the previous quarter and 10% over the year-ago report.

Amazon reported $16.1 billion in revenue, up from $11.6 billion a year ago. If you're doing the math at home, you will note that this number is not one-third of $45 billion, and that's because Synergy tracks infrastructure, platform services and hosted private clouds, and subtracts any revenue that's not purely from these buckets such as consulting or hardware.

Microsoft makes it even harder to determine total cloud infrastructure market, but if you do the math based on Synergy's data, it's $9 billion for Azure infrastructure revenue, up from $8.4 billion last quarter. According to Microsoft, the company's Azure and other cloud services grew 50%, down ever so slightly from 51% growth last quarter and up 2% from the year-ago quarter.

Finally, we have Google, which held steady with 10% market share, good for $4.5 billion, up from $4.2 billion last quarter, and up from $2.9 billion in the year-ago period, as Google continues to make steady progress in the cloud infrastructure market.

Canalys estimated even larger overall revenue of $49.4 billion, putting it on a run rate of almost $200 billion. They estimated a slightly lower growth rate of 35%, and the market share estimates for the Big Three varied slightly with the firm estimating Amazon with 32%, Microsoft 21% and Google 8%.

Regardless of whose numbers you use, it's a significant market that is still growing at a substantial rate, but Canalys warns that chip shortages could slow that growth in the coming year. "Overall compute demand is outgrowing chip manufacturing capabilities, and infrastructure expansion may become limited for the cloud service providers," Blake Murray from Canalys said in a statement.

Supply chain constraints were certainly on the mind of these companies and analysts in earnings calls. Microsoft CFO Amy Hood had this to say when asked specifically about the supply chain problem's impact on data center expansion by Kash Rangan, an analyst at Goldman Sachs.

"Secondly, you asked some good questions about the supply chain impact, and specifically around data centers, given our spend this quarter and my guidance should be similar next. A lot of that, Kash, is long lead time. So, we do have a good understanding of lead times required to meet the capacity signals that we're seeing. I think we did a good job managing that, it's not to say we're not impacted, multiple suppliers are important to be able to manage through that. And I feel the team has done a very good job," Hood said in the call.

John Dinsdale, chief analyst at Synergy, says that the clout of these large vendors means they'll likely get what they need in spite of overall chip market issues. "These companies are pretty good at managing their supply chains and they are such huge customers that you have to believe they will get preferential treatment from suppliers," he said.

"There are also a few knobs they can adjust in terms of things like build versus lease decisions, extending server lifespan a little and switching workloads to different geographies. They now have enormous and geographically dispersed data center networks that gives them a lot of wiggle room to get what they need, " he said.

Patrick Moorhead, principal analyst at Moor Insights and Strategies, who keeps a close eye on the chip market agrees, saying that the costs may go up, but the hyperscalers are probably still going to get their supplies.

"I don't think we're at that point yet. If the shortage gets worse, yes, but I don't foresee that happening. Chipmakers prioritize the data center as it's higher margin, so they're first in line versus consumer PCs and smartphones," Moorhead told me.

Even if supply issues had a short-term impact on data center growth, it seems nothing is going to slow down this market over the long haul. With companies ready to move more workloads into the cloud, growth seems assured, but we'll see next quarter if the supply chain has had any effect.