 From theCUBE Studios in Palo Alto in Boston, bringing you data-driven insights from theCUBE and ETR. This is Breaking Analysis with Dave Vellante. Despite a mixed bag of earnings reports from tech companies, negative GDP growth this past quarter and rising inflation, the cloud continues its relentless expansion on the IT landscape. AWS, Microsoft and Alphabet have all reported earnings and when you include Alibaba's cloud in the mix, the big four hyperscalers are on track to generate 167 billion in revenue this year based on our projections. But if we said many times on theCUBE, the definition of cloud is expanding and hybrid environments are becoming the norm at major organizations. We're seeing the largest enterprise tech companies focus on solving for hybrid and every public cloud company now has a strategy to bring their environments closer to where customers workloads live in data centers and at the edge. Hello and welcome to this week's Wikibon Cube Insights powered by ETR. And this Breaking Analysis will update you on our latest cloud projections and outlook. We'll share some fresh ETR data and commentary on what's happening in the hybrid zone of cloud. Let's start with the market data for the big four hyperscalers. In this chart we share our big four cloud shares for IS and PASS for 2020, 2021 and the first quarter of 2022 and our estimate for 2022 full year and growth. Remember, only AWS and Alibaba report relatively clean IS and PASS figures, whereas Microsoft and Google, they bundled their cloud infrastructure in with their SaaS numbers. Both firms, however, they do give guidance and we use survey data and other tidbits to create an apples to apples comparison. And that's what we show here. For the quarter, the big four approached 37 billion in revenue as a group. Azure's growth rate is reported by Microsoft, but the absolute revenue is not. Azure growth accelerated sequentially by 49% to just over 13 billion in the quarter by our estimates. While AWS's growth moderated sequentially, but revenue still hit 18.4 billion. Azure by our estimates now is more than two thirds the size of AWS's cloud business. Google and Alibaba are fighting for the bronze medal, but well behind the two leaders. Microsoft's Azure acceleration is quite remarkable for such a large revenue base, but it's not unprecedented as we've seen this pattern before with AWS. Nonetheless, the fact that Azure is growing at the same rate as GCP is quite impressive. Now a couple of other tidbits of information. Amazon, its stock is getting hammered today because of inflation and slowing growth rates at the top line, but AWS continues to beat Wall Street's expectations. Now look at Amazon's operating income this quarter tells the story. Amazon overall had operating income of minus 3.66 billion and AWS's operating income was 6.5 billion. AWS's operating margin grew sequentially from nearly 30% last quarter to 35.3%. That's an astoundingly profitable figure. This is comparable to insanely profitable companies like Oracle and Microsoft. These are software companies with software and marginal economics. Is that level sustainable? Probably not for AWS, but it's eye-opening nonetheless. ETR survey data shows why these companies are doing so well with customers. This chart shows the net score granularity for the big four cloud players. Net score, remember, measures spending momentum by asking customers, are you adopting new, that's the lime green, increasing spend by 6% or more, that's the forest green, flat spend is the gray, spending dropping by 6% or worse is the light pink and the red is decommissioning the platform. Subtract the reds from the greens and you get a net score, which is shown on the right. Anything, by the way, over 40%, we consider highly elevated. Now, some key points here. Microsoft includes its entire business in this chart, or we're including, ETR is including Microsoft's entire business, not just its cloud. Its Azure-only net score is 67% higher than even AWSes, and that's huge. Google Cloud, on the other hand, while still elevated is well behind the two leaders. Alibaba's data sample in the ETR survey is small and China has had its foot on the neck of big tech for a while, so we can't read too much into a net score of 26. But notice the replacements in red across the board, single digits for all and low single digits for the two giants, 1% for Amazon and Azure, very impressive. Now, the other really telling reality check is CAPEX spending on cloud. CAPEX spend tends to be a pretty good indicator of scale, and Charles Fitzgerald, who runs the platformonomics blog, spends a fair amount of this time on this topic, and we borrowed this chart from a recent post he did. We then we put in some estimates of our own. It shows CAPEX spend over time for five cloud companies, the big three U.S. firms that we just talked about plus IBM and Oracle. It's always astounding to me to go back to the pre-cloud era and look at IBM. They were in a great position prior to 2006 to really dominate this notion of as a service and the transition to what is now known as cloud. But they really couldn't get their head out of professional services and their outsourcing business. There was some conflicts there as well. And so, you know, IBM you see is that dark blue or black line and spent significantly more than the others way back when, not anymore. Charles is kind of a snark. He loves to make fun of our super cloud concept even though I'm confident it's evolving and is real, but his point above in this chart is right on the big three U.S. players spend far more on CAPEX than IBM and Oracle. He states that Oracle's uptick in CAPEX spend puts them past IBM, but the two of them are battling to distance themselves and differentiate from the X axis. Funny guy Charles. In its recent earnings report, Amazon stated that around 40% of its CAPEX goes to infrastructure and most of that goes to AWS. It expects CAPEX to grow this year and around 50% will go toward infrastructure. So we've superimposed a rough estimate of where AWS lands when you subtract out all of Amazon's warehouses for retail. And once again, Microsoft is notable because unlike Amazon it doesn't have a zillion warehouses to ship products to consumers. And while Google spending is massive it's mostly on servers to power its ad network but there's no question that GCP can leverage that infrastructure and the tech behind it and it does. And by the way, so can everyone else by the way leverage all this CAPEX spend? We're going to come back to that and talk about super cloud in a moment. Okay, let's close by looking at the ever expanding cloud landscape. This chart shows a two dimensional view of the ETR data for cloud computing. On the vertical axis is net score or spending momentum and on the horizontal axis is pervasiveness in the data set. It's like market share within the survey, if you will. The chart insert shows the data for how the dots are plotted on each axis. The red dotted line at 40%, remember indicates a highly elevated position with net score and significant spending momentum. And the green arrows show the movement for some companies relative to three months ago. Okay, so Microsoft and AWS they're kind of circled way up in the right hand corner. Very impressive. Just to reduce the clutter, we're not showing AWS Lambda here and some other highly elevated services which would push up, tick up AWS's net score but it's still really, really good. As is Azure, they're both moving solidly to the right relative to last quarter's survey. So gaining presence in the data set and presumably in the market as well. Google is as we've said, well behind as much work to do. It was announced this past week that the head of sales at Google Cloud, Rob Enslin, is leaving to join UiPath. So some interesting news there. We've highlighted the hybrid zone. Now to the theme of this breaking analysis, the ever expanding cloud, AWS announced that it's completed the launch of 16 local zones in the US and there are 32 more coming across 26 countries. Local zones basically bring cloud infrastructure regions where there's a lot of IT that isn't going to move. And for proximity and latency reasons, they have to move closer, move the cloud closer, the cloud operating model, if you will, closer to the customers. And there's that CapEx build out showing its head again. Now the reason this hybrid zone becomes interesting is you're seeing the large enterprise players finally go after the hybrid cloud in earnest. It's almost like the AWS outposts announcement in 2018 was a wake up call to traditional infrastructure players like Dell, HPE, and IBM. It took a while, but Oracle is kind of skipping to its own tune, but they're in that hybrid zone as well. IBM had a really good quarter and the Red Hat acquisition seems to be working to support its hybrid cloud strategy. Now VMware several years ago cleaned up its fuzzy cloud strategy and partnered up with AWS and everyone else. And you see VMware cloud on AWS doing well as is VMware cloud, it's on-prem offering. Even though it's somewhat lower on the X axis based on that green line that Green Arrow was showing relative to last quarter, it's moving to the right with a greater presence in the data set. So we see that as a positive sign. Now Dell and HP are interesting. Both companies are going hard as a service with Apex and GreenLake respectively. HPE based on the survey data from ETR seems to have a lead in spending momentum while Dell has a larger presence in the market, naturally is a much bigger company. HPE is climbing up on the X axis as is Dell, although not as quickly. And the point we come back to often is the definition of cloud is in the eye of the customer. AWS can say, no, no, that's not cloud. And the on-prem crowd can say, we have cloud too. It really doesn't matter. What matters is what the customer thinks and in which platforms they choose to invest. And I'll close by circling back to the idea of super cloud. You are seeing it evolve and you're going to hear more and more about it. Yeah, maybe not the term and you don't like it, but we're going to continue to use it as a metaphor for a layer that leverages the CapEx build, the gift that the hyperscalers are providing the industry. This is a real opportunity for the likes of Dell, HPE, IBM, Cisco and dozens of other companies providing compute and storage, infrastructure, networking, security, database and other parts of the stack. By hiding the underlying complexity of the cloud, dealing with all the API and primitive muck, creating a singular experience across on-prem, across clouds and out to the edge is a definite need from customers. This is a new battle that's shaping up and it's going to be expensive to build and require an ecosystem cooperating across this API economy as some like to call it. It's going to have to do that to make it a reality. Now, there's a definite, as I say, customer need for this common experience and in our view, we're seeing it manifest in pockets today and in strategies and in R&D projects, both within startups and established players. Okay, that's it for today. Thanks to Stephanie Chan, who helps research breaking analysis topics. Alex Meyerson is on production and he also manages the breaking analysis podcast. Kristen Martin and Cheryl Knight get the word out on social. Thanks to all, including Rob Hoef, our editor in chief at Silicon Angle. Remember, these episodes are all available as podcasts. Wherever you listen, all you're going to do is search breaking analysis podcast. Check out ETR's website at ETR.ai. We publish a full report every week on wikibon.com and siliconangle.com. You can email me directly at david.volante at siliconangle.com or DM me at dvolante or comment on our LinkedIn posts. This is Dave Vellante for theCUBE. Insights powered by ETR. Have a great week, stay safe, be well and we'll see you next time.