Pricey AI Apps Drive Up Cloud-Computing Spending

Corporate spending on cloud computing is rising at double-digit rates, as chief information officers and other tech leaders adopt advanced capabilities such as artificial intelligence that cost more than run-of-the-mill business applications, new market data shows.

On top of the inherent costs of the technologies themselves, typically purchased as subscriptions, many of these applications tend to eat up computing power, adding to cloud-usage bills, industry analysts said.

Home Depot’s Daniel Grider.


Photo:

Home Depot Inc.

“We continue to invest in technologies that enable us to operate faster and on a larger scale,” said Daniel Grider, head of infrastructure and operations at Home Depot. Inc.

“Cloud-enabled solutions are a key element to that, and we’re seeing these benefits online and in store.”

Companies world-wide this year are expected to spend an estimated $ 494.7 billion on cloud computing, up 20% from 2021, and such spending is on pace to reach $ 600 billion by the end of 2023, information-technology research and consulting firm Gartner Inc.

said in a report published Tuesday.

Spending on infrastructure-as-a-service — a type of cloud-computing service that provides companies with on-demand computing, storage and networking resources — is forecast to show the highest growth of any cloud category in 2022, at 31%, Gartner said.

Close behind, it said, is an expected 26% increase in spending on cloud-based platform services used to build, test, deploy and update business software applications, including sophisticated AI, business intelligence and Internet-of-Things capabilities.

Gartner expects cloud-based platform services to drive $ 109.6 billion in corporate spending this year, up from $ 86.9 billion in 2021, with spending levels inflated by advanced applications.

“It’s the willingness of CIOs to purchase higher-valued features that is fueling public cloud spending growth,” said Sid Nag, a vice president in Gartner’s technology and service provider group.

Technology leaders and industry analysts said the value that advanced software tools provide, such as leveraging data to boost customer services or drive more informed business decisions, can make them an easy sell to chief executives and corporate boards overseeing information-technology budgets.

That has been especially true since the Covid-19 pandemic began in 2020, when many companies invested heavily in digital tools and technologies to adapt to remote work, lockdowns, store closures and other conditions. Many businesses want to ensure they are getting full value from these investments, tech leaders and analysts said.

Another reason these applications tend to be more expensive is that it can be difficult to compare prices among tech vendors, said John Annand, principal research director at IT research firm Info-Tech Research Group. A lack of interoperability can also make it expensive to change tech providers, he said.

“This reduces any downward pressures on price as the potential switching cost grows and grows,” Mr. Annand said.

Write to Angus Loten at angus.loten@wsj.com

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