BigTech's Cloud computing dominance consolidates AI capex bets
Cloud computing is growing in a different way with Generative AI adoption.
Good Morning,
Today we will be thinking about how Generative AI is fostering Cloud growth and how the Cloud computing industry works.
Value Added
Our guest today is a prolific writer and thinker on the political economy of innovation. If this interests you, consider subscribing:
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Microsoft’s earnings about a week ago signal that Generative AI is accelerating their cloud Azure growth. This is a huge part of the ROI from AI capex that a lot of folk are missing. Azure revenue grew 33%, with 16 points of the growth associated with AI.
This is pushing over in China Alibaba, Huawei and Baidu to really double down on LLMs, AI chips and Generative AI. Outside of digital advertising, Cloud computing is the biggest business model in all of technology with the biggest total addressable market.
Cloud Computing Growth and Google Search Uncertainty
Microsoft’s cloud is there growing significantly faster than Amazon Web Services (AWS), due to their early investment in Generative AI. The global cloud computing market is now worth around $912.77 billion in 2025. Precedence Research predicts that the market will keep growing and could reach $5.15 trillion by 2034, with a CAGR of 21.2% over the next ten years.
Google Cloud that’s smaller than AWS and Azure is also growing at a health clip of saw its revenue increase 28% year over year. Google’s efforts in AI products is also enabling Google Cloud to have more traction. Its Search advertising prospects in the years ahead are a little more uncertain.
Recently, Apple executive testifying in a federal court in Washington as part of the Justice Department’s lawsuit against Alphabet said AI was on its way to replacing Search leading to a steep drop in Google stock price yesterday about 7.5%. That’s the third-largest share price decline since the company went public in 2004. As you can see, big things are happening in mid 2025.
The Gen AI Repositioning
The competition in Generative AI among BigTech players is a repositioning of existing markets like Cloud Computing, search advertising, social media , digital advertising as a whole and the entire SaaS industry and B2B space.
Alphabet said Waymo is providing more than 250,000 fully autonomous paid rides per week across the San Francisco, Los Angeles, Phoenix and Austin regions. And from Uber data it appears consumers prefer autonomous vehicle rides to human drivers. The average Waymo vehicle in Austin is “busier than 99%” of human-driven vehicles there, Khosrowshahi said. If a recession takes place in and around the end of 2025 and 2026, some analysts see Agentic AI products as having a unique window to stimulate some adoption and automation.
Rise of the Huawei Hydra
Meanwhile in China, Alibaba and Huawei are making incredible progress in LLMs, open-source models, AI chips and fortifying their own lead in the cloud for their region. More on this later in an article soon, I’ve asked
of AI Proem Newsletter to take a closer look again at Huawei. Huawei is obviously pivotal to China’s Cloud and AI strategy. Huawei is like China’s Apple, Cisco, Nvidia and Google all spun into one in a sense.Huawei is by default becoming the Nvidia of China and already Huawei Cloud is the second-largest player in the Chinese cloud service market, with a 19% share in Q3 2024. Of course globally its cloud share only amounts to 2%. The West doesn’t have a Huawei equivalent. China is expected to catch up in some ways to the West in the semiconductor and Cloud computing industries by 2035. Due to exports restrictions by the West on AI chips, how China BigTech collaborates with AI startups like DeepSeek has already gotten a lot more sophisticated.
Huawei’s breakthrough in May is likely to be its new chip Ascend 910D, its most advanced AI chip yet.
Nvidia CEO on China
On April 30th Jensen Huang made some stunning remarks relevant to the rise of Huawei as a potential competitor.
Who and What to Watch?
Amazon (AWS)’s lead in the Cloud is significant however. In Q4 2024, Amazon Web Services (AWS) held approximately 30% of the cloud infrastructure services market. This is a slight decrease from its 31% share in Q4 2023. While it’s losing ground relative to Azure and Google Cloud, Amazon has in recent years significantly improved its digital advertising business. If Google begins to lose Search Ads market dominance, Amazon is well positioned.
Generative AI is thus not “bigger than mobile”, but is a significant layer in the Cloud for these B2B Behmonths.
Generative AI and the intersection of Cloud computing means these are the key Cloud entities companies to watch:
Huawei (and SMIC)
Google Cloud
Azure
Alibaba
Nvidia
AWS
Alibaba is more dominant in China than AWS is in the U.S. in the Cloud
Let’s note that Alibaba is the biggest Cloud computing provider in China and also among the most advanced with their Alibaba Cloud Qwen division. Alibaba has a bigger share of China’s market than AWS has in the U.S now. Alibaba, the leader with a 36 per cent market share in the fourth quarter, has pledged to invest 380 billion yuan (US$52.4 billion) in computing resources and AI infrastructure over the next three years. Note also that Google and Amazon have significant equity in Anthropic, the leading Enterprise AI firm of the Generative AI movement.
Let’s go to the deep dive of the day:
The evolution of cloud computing
Value Added is a newsletter about the political economy of innovation.
Value Added
It’s rare to find a writer so keen on the history of technology and how it actually works and
of Value Added Newsletter has also been thinking about all of this quite deeply.Scholar in Residence 🎓
JS Tan is a PhD Candidate at MIT’s international development program, researching the political economy of innovation in China and the US. He previously worked in the cloud computing industry as a software engineer.
I consider him an expert on innovation. JS Tan is recognized for his contributions to data transparency, having recently won a 2023 MIT Prize for Open Data, which highlights his commitment to promoting accessible information in research and policy discussions. See Collective Action in Tech. He is among the most promising young scholars on Substack I’ve ever come across.
The evolution of cloud computing
Image: The ever-cultured JS chose the artwork Scramble: Green Double/Left N, Right 8 (1977) by Frank Stella.
The evolution of cloud computing: from a basic utility to a platform for innovation
JS Tan
The cloud is often likened to a basic, fungible utility such as electricity or water. Matt Wood, then-chief data scientist of Amazon’s cloud business, even explicitly said that it was their goal to deliver “computing power as if it was a utility.” And like a utility, the cloud quietly powers much of our digital lives—largely invisible yet completely essential. Just as a power outage can paralyze a city, a cloud outage can bring the digital world to a standstill.
But there’s something odd about comparing the cloud to a utility. The firms that dominate it—Amazon, Microsoft, and Google—are nothing like water, gas, or electricity providers, which operate in the background with little fanfare. (How many utility companies can you name off the top of your head?) Even telecom giants like AT&T or Verizon, which offer a more sophisticated kind of utility, market themselves around reliability and coverage rather than cutting-edge innovation.
By contrast, Amazon, Microsoft, and Google feel like an entirely different breed. Rather than acting like sleepy utility companies, quietly collecting revenue from every customer that touches their cloud, they are tech companies in the most classic sense—defined not by stability but by relentless disruption.
To be clear, these firms do offer the most basic, utility-like servers and likely always will. But where they diverge from traditional utility providers is in their relentless push to create value beyond these foundational services, from AI-powered computing clusters and custom-designed silicon chips to sophisticated software platforms. In this way, the cloud isn’t just about providing basic infrastructure—it’s about building differentiated, high-value services.
In this post, we’ll explore the evolution of the cloud business—how it began as a traditional utility-like service, offering basic, commoditized storage and computing at low costs. We’ll then examine its transformation into a business driven by differentiated, value-added services that command a premium.
Editor’s Addition
I’m not going to lie, 🕊️ I am also a fan of JS Tan’s interest in Tech activism. In the past he’s also written on topics such as bullshit tech work, Big Tech’s collaboration with Big Oil, and industrial relations in China’s tech sector. He’s incredibly prolific.
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To rent or buy
tl;dr 🎧 Audio Version: 22 minutes 50 seconds:
Tan’s Works
☁️ Behind the AI Arms Race: U.S. vs. China Cloud Computing Comparison
🌍 Pluralism vs corporatism: why countries innovate differently
🐋 DeepSeek part 1: How new labor practices propelled an unknown AI firm to the top
🚀 DeepSeek part 2: An Outlier in China’s AI Innovation Ecosystem
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