Cloud computing industry is facing the European energy crisis

None of us can imagine living today without cloud computing. From the cloud where our photos taken with the smart phone go, to the email, the games, data from our work, social media, we are using data every day, on the go. And the industry is constantly growing but not without threats brought by the ongoing European energy crisis.

Market commentary by eToro analyst for Romania, Bogdan Maioreanu

eT

According to an analysis, the global cloud computing market size was estimated at 368.97 billion dollars in 2021 and is expected to reach 483.98 billion dollars this year. The global cloud computing market is expected to witness a compound annual growth rate of 15.7% from 2022 to 2030 to reach more than 1.5 trillion by 2030.

Put simply, cloud computing is the delivery of computing services over the Internet. It involves storing and accessing data and programs online, instead of on a local server or hard drive. One of the key advantages of cloud computing is that it enhances mobility. And in order to function, cloud computing needs huge datacenters that are consuming a lot of electric energy.

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The global data center electricity use in 2021 was 220-320 TWh, or around 0.9-1.3% of global final electricity demand, according to the International Energy Agency. This excludes energy used for cryptocurrency mining, which was 100-140 TWh in 2021. Globally, data transmission networks consumed 260-340 TWh in 2021, or 1.1-1.4% of global electricity use.

But at the local level the situation is much more difficult. As an example, last year the industry consumed 14% of Ireland’s power. There are reports that Amazon Web Services (AMZN), Equinix (EQIX) and Microsoft (MSFT) might be forced to halt more than 2 billion dollars worth of data center projects in Dublin due to the city’s power constraints. The situation is not singular. London warned home builders that power shortages caused by data centers could affect new projects, and Amsterdam said it simply had no more room for data centers facilities.

The current situation might mean a shortage of the data centers capacity in the near future. Demand for data center services is poised to rise, driven by emerging digital technologies such as blockchain and by machine learning. Mobile data traffic is also projected to continue growing quickly, quadrupling by 2027. The rise of AI based applications, cloud computing, cloud gaming, live streaming and conferencing are increasing the demand for data centers capacity.

These prospects combined with a recent decrease in market value for the companies in the cloud computing industry might create interesting opportunities for investments. Companies like Microsoft, IBM (IBM), Oracle (ORCL), Adobe (ADBE), Amazon, Google (GOOG), Alibaba (BABA) and UiPath (PATH) are proposing cloud solutions to their clients and are investing in the development of related technologies. In order to help investors navigate the cloud computing industry, eToro launched a smart portfolio covering 30 leading companies including the ones mentioned above.

All the headwinds coming from the European energy crisis are having a silver lining too. In 2021 Apple, Google and Meta purchased or generated enough renewable electricity to match 100% of their operational electricity consumption primarily in data centers. Amazon consumed 30.9 TWh (85% renewable) across their operations with a goal of achieving 100% renewables by 2025.

Companies in the industry are scrambling for alternative energy sources triggering investments in the field. Amazon announced 71 new projects representing 2.7 GW of capacity. The US tech group now has a 18.5-GW portfolio consisting of 379 renewable energy projects in 21 countries. Microsoft is part of a 15 years project with energy company AES that is aimed at sourcing green energy for its data centers. All these projects are helping speed the transition toward renewable energy.