Artificial intelligence is poised to “completely transform and expand” the cloud computing market in 2023, bucking broader economic trends threatening to contract the market, according to a new report released Wednesday from Bessemer Venture Partners.
Rising interest rates and the crisis at Silicon Valley Bank have made tech investors risk adverse for 2023, making it harder for startups to raise capital, analysts say. Bessemer put the height of the bull market for public cloud at November 2021, when market capitalization reached a peak of $2.7 trillion.
Future growth in cloud will be propelled by AI tools, allowing software as a service vendors to reach segments previously thought untouchable,
“The AI movement has re-ignited the cloud,” Janelle Teng, a vice president at Bessemer who focuses on growth investments in cloud software, said.
The report called AI “tablestakes” for cloud companies and warned “those that don’t get on board will be left behind.” Bessemer estimates that AI-native companies will reach $1 billion annual recurring revenue 50% faster than their cloud counterparts.
End user spending on public cloud services is expected to reach nearly $600 billion in 2023, according to the research firm Gartner. The fear for cloud companies, Gartner predicted last year, was that IT budgets everywhere could shrink and constrain the cloud market.
Teng said growth in 2023 and beyond, thanks for AI, could reach beyond the traditional IT budget. AI pulls from large datasets to make pictures or words that appear as if they were created by a person.
Such technology could be ripe to disrupt industries that rely on standardize forms or language previously created by people.
Look at companies like Jasper, which offer AI tools that help write marketing copy and other creative content, Teng said. Or others that do some legal writing.
For years cloud computing companies were replacing on-premise data centers and other technologies. Now, they’re poised to replace certain human tasks.
“There’s less and less of that low-hanging fruit to chase,” Teng said.
The trend can be limited in heavily regulated industries like finance or health care. Companies in these segments can still adopt AI tools, Teng said, but with an eye on compliance.