The AI boom is driving a full-scale acceleration in cloud computing demand! Morgan Stanley: Snowflake (SNOW.US), Datadog (DDOG.US), and MongoDB (MDB.US) are poised to benefit.

Morgan Stanley's latest research report points out that strong growth in artificial intelligence (AI) demand is driving a synchronous acceleration in traditional cloud computing businesses. The three major cloud service providersAmazon.com, Inc. (AMZN.US), Microsoft Corporation (MSFT.US), and Alphabet Inc. Class C (GOOG.US, GOOGL.US)together saw combined revenue grow approximately 56% year-over-year in the third quarter, up from 48% in the second quarter. Morgan Stanley believes that the continued expansion of the cloud computing market provides a favorable demand environment for upcoming quarterly results from cloud infrastructure software companies such as Snowflake (SNOW.US), Datadog (DDOG.US), and MongoDB (MDB.US), and that the prior relative weakness in these companies' share prices makes market expectations ahead of their earnings reports more attractive. According to the Morgan Stanley report published on November 3, the three major cloud service providers' combined third-quarter revenue reached approximately US$109.9 billion, up 55.7% year-over-year, further accelerating from 47.9% growth in the second quarter, indicating that enterprise cloud computing spending remains strong. Among them, AWS, under Amazon.com, Inc. (AMZN.US), saw third-quarter revenue grow 39% year-over-year on a constant-currency basis, higher than 37% in the second quarter, marking the sixth consecutive quarter of accelerating growth and the fastest pace in nearly five years. Microsoft Corporation's (MSFT.US) Azure cloud business grew 48% year-over-year on a constant-currency basis in the third quarter, higher than 42% in the second quarter. Microsoft Corporation said growth was driven by both the Azure AI platform Foundry and improved monetization of traditional computing resources, although delays in third-party data center capacity delivery remained a constraint. Alphabet Inc. Class C's parent company Alphabet's (GOOGL.US) Google Cloud was particularly outstanding, with third-quarter revenue growing approximately 103% year-over-year, higher than 82% in the second quarter, the largest acceleration among the three major cloud service providers. However, Morgan Stanley noted that Google Cloud's rapid growth was partly boosted by TPU system sales. Excluding TPU systems, the bank's internet research team estimates that Google Cloud's core business revenue grew approximately 71% year-over-year, roughly flat with the second quarter. AI demand is no longer limited to computing power; traditional cloud services are benefiting in tandem Morgan Stanley believes that the latest results from the three major cloud service providers reflect an important trend: AI infrastructure investment has not only driven demand for GPUs and specialized computing resources, but has also begun to drive growth in traditional computing, storage, database, and data analytics businesses. Amazon.com, Inc. said revenue growth in its core computing and storage businesses reached the fastest level in several years, and emphasized the close link between AI spending and traditional cloud service growth. Microsoft Corporation likewise noted that Azure's growth came from both traditional cloud services and AI infrastructure. Alphabet said demand remained strong across both AI and its core Google Cloud business. Morgan Stanley believes this means that the expansion of AI applications is creating additional traditional cloud computing demand rather than simply replacing existing businesses. At the same time, AI agents are gradually moving from the experimental stage into actual production environments, further expanding enterprises' consumption of cloud computing resources. Amazon.com, Inc. management disclosed that AI inference business now accounts for more than half of AWS AI revenue. In the third quarter, the number of AI agents deployed by customers using Amazon AgentCore was twice the combined total of the previous three quarters. At Microsoft Corporation, Foundry platform revenue more than tripled year-over-year, and the number of AI agents registered on the Agent 365 platform has exceeded 50 million, up more than 30% quarter-over-quarter. Morgan Stanley noted that as more enterprises put AI agents into actual operations, related applications will continue to generate computing requests, data calls, and model inference demand, thereby driving expansion of the cloud infrastructure and supporting software markets. Snowflake: Accelerating AWS growth is expected to support data platform revenue For Snowflake, Morgan Stanley believes that continued acceleration in AWS business is an important positive signal. Since the vast majority of Snowflake's product usage comes from the AWS cloud platform, six consecutive quarters of accelerating AWS growth means Snowflake's product revenue is expected to receive stronger demand support. At the same time, faster Azure growth also reflects an overall improvement in enterprise cloud computing demand. However, Morgan Stanley cautioned that the three major cloud service providers are further intensifying competition in the data analytics field. Amazon.com, Inc. acquired DuckLabs and plans to use DuckDB as the general SQL query language for AWS storage analytics services to reduce customers' costs of migrating between different data analytics engines. Alphabet said BigQuery query speed increased more than 40% year-over-year, while query processing costs fell more than 50%. In addition, Alphabet Inc. Class C and Microsoft Corporation are also accelerating their push into AI agent products for enterprise knowledge work, creating potential competition with related applications launched by Snowflake. Alphabet said cumulative paid usage seats for its AI services for knowledge work scenarios have exceeded 100 million. Microsoft Corporation has integrated chat, collaboration, automated task execution, and coding functions into a unified Copilot experience. Morgan Stanley believes that competition among cloud giants is extending from underlying computing resources to data analytics and the enterprise AI application layer. However, such competition is more of a medium-term challenge and is not sufficient to indicate that Snowflake's demand in the current quarter is being affected. The bank also noted that if AI agents can directly query data stored by enterprises on the Snowflake platform, this may instead further increase platform usage. Datadog: Cloud computing acceleration benefits core business, AI agents bring new demand For Datadog, Morgan Stanley believes that combined revenue growth of 56% among the three major cloud service providers provides a favorable environment for its core cloud monitoring business. Datadog's business is closely tied to enterprise cloud resource usage, so continued growth in cloud computing demand is expected to drive increased usage of its monitoring, log analysis, and application performance management products. Morgan Stanley noted that excluding its largest customer, Datadog's second-quarter business grew approximately 36%, and the strong third-quarter performance of cloud service providers supports the continuation of this growth trend. The rapid adoption of AI agents is expected to become a new growth driver. As enterprises deploy more AI agents, the model calls, task execution records, and inference costs generated during application operation all require continuous monitoring, creating new market opportunities for Datadog's AI monitoring products. Morgan Stanley channel checks show that Datadog partners generally performed better than original plans in the third quarter, with actual customer usage exceeding initial commitment levels, and strong performance in new customer acquisition, multi-product adoption, and usage growth among existing customers. However, Morgan Stanley emphasized that although revenue contribution from AI-related products is increasing, cloud migration, system modernization, and cross-selling remain Datadog's more primary growth drivers at present. The bank believes that Datadog's third-quarter revenue growth of approximately 33% to 34% year-over-year, and fourth-quarter revenue guidance implying a growth rate of nearly 30%, will be important references for the market in assessing its earnings performance. Longer term, the core question the market is focused on is whether Datadog can continue to maintain growth of approximately 30% excluding its largest customer through 2027. Morgan Stanley noted that Amazon.com, Inc. believes AWS is expected to achieve growth of more than 40% in both 2027 and 2028, while Microsoft Corporation's Azure growth guidance for the quarter ending in December is 49% to 50%; these data all support the judgment that cloud computing demand will remain strong. However, Microsoft Corporation is positioning Agent 365 as a platform with AI monitoring capabilities, which may create some competition for Datadog's related products in the future. MongoDB: Adoption of AI agents drives database demand, but Microsoft Corporation competition should not be ignored For MongoDB, Morgan Stanley believes that AI agents moving from testing to production environments will benefit the enterprise operational database market. Unlike traditional chat Siasun Robot&Automation, enterprise AI agents typically require real-time access to company internal data in order to understand business context, execute tasks, and provide accurate results. This means that as enterprise AI applications scale up, demand for database products capable of providing real-time data access and processing capabilities is also expected to grow. Alphabet noted in its financial report that AI agent application development is driving increased database usage in order to provide agents with the business context needed for inference. Morgan Stanley believes this is consistent with MongoDB's previously stated view at its investor day that enterprise AI systems need real-time access to internal data, and that MongoDB's database platform is expected to benefit from this trend. However, competitive risk also deserves attention. Microsoft Corporation said that its AI-optimized database products, including PostgreSQL, SQL Database, Hyperscale, and Cosmos DB, are increasingly being used by enterprises to store the data and contextual information required by AI agents. Among them, Microsoft Corporation's PostgreSQL business has achieved accelerating growth for the fourth consecutive quarter. Morgan Stanley noted that the adoption of AI agent applications is expected to expand the entire database market, but major cloud service providers' continued strengthening of their own database products may also intensify competition facing MongoDB.