The report from Gartner also reveals that Infrastructure-as-a-service (IaaS) is forecast to experience the highest growth at 30.2%, followed by platform-as-a-service (PaaS) at 24%.

The report also shows that worldwide end-user spending on public cloud services is forecast to grow 21.7% to total US$597.3 billion in 2023, up from US$491 billion in 2022,

“Cloud first policies continue to drive increased spending on cloud infrastructure in Australia in 2023,” said Michael Warrilow, research vice president at Gartner.

“In fact, IaaS remains a higher priority that most value-adding technologies – including artificial intelligence and machine learning. That’s a trend that CFOs will only put up with for so long because cloud adoption must drive incremental business value.”

“Hyperscale cloud providers are driving the cloud agenda,” said Sid Nag, Vice President Analyst at Gartner. “Organisations today view cloud as a highly strategic platform for digital transformation, which is requiring cloud providers to offer more sophisticated capabilities as the competition for digital services heats up.”

“For example, generative AI is supported by large language models (LLMs), which require powerful and highly scalable computing capabilities to process data in real-time,” added Nag. “Cloud offers the perfect solution and platform. It is no coincidence that the key players in the generative AI race are cloud hyperscalers.”

Gartner predicts that by 2026, 75% of organisations will adopt a digital transformation model predicated on cloud as the fundamental underlying platform.

“The next phase of IaaS growth will be driven by customer experience, digital and business outcomes and the virtual-first world,” said Nag. “Emerging technologies that help businesses interact more closely and in real time with their customers, such as chatbots and digital twins, are reliant upon cloud infrastructure and platform services to meet growing demands for compute and storage power.”

While cloud infrastructure and platform services are driving the highest spending growth, SaaS remains the largest segment of the cloud market by end-user spending. SaaS spending is projected to grow 17.9% to total $197 billion in 2023.

“The technology substrate of cloud computing is firmly dominated by the hyperscalers, but leadership of the business application layer is more fragmented,” said Nag. “Providers are facing demands to redesign SaaS offerings for increased productivity, leveraging cloud-native capabilities, embedded AI and composability – particularly as budgets are increasingly driven and owned by business technologists. This change will ignite a wave of innovation and replacement in the cloud platform and application markets.”

Gartner clients can learn more in “Forecast: Public Cloud Services, Worldwide, 2021-2027, 1Q23 Update.”