Worldwide spending on public cloud services is forecast to reach $1.35 trillion in 2027, according to the latest update to the International Data Corporation (IDC) Worldwide Software and Public Cloud Services Spending Guide.

Although annual spending growth is expected to slow slightly over the 2023-2027 forecast period, the market is forecast to achieve a five-year compound annual growth rate (CAGR) of 19.9%, the analysts find.

Eileen Smith, program vice president, Data & Analytics at IDC, comments, "Cloud now dominates tech spending across infrastructure, platforms, and applications."

"Most organisations have adopted the public cloud as a cost-effective platform for hosting enterprise applications and for developing and deploying customer-facing solutions."

"Looking forward, the cloud model remains incredibly well positioned to serve customer needs for innovation in application development and deployment, including as data, artificial intelligence/machine learning (AI/ML), and edge needs continue to define the forefront of innovation."

Of the 28 industries covered in the Spending Guide, the three largest in 2027 - Banking, Software and Information Services, and Telecommunications - will together represent $326 billion in public cloud services spending.

Retail and Professional and Personal Services will be the next largest industries in terms of spending, giving the top 5 industries a combined share of nearly 36%.

The industries that will see the fastest spending growth through 2027 are Software and Information Services (24.0% CAGR), Capital Markets (21.9% CAGR), and Telecommunications (21.8% CAGR). In fact, every industry except Consumer will deliver double-digit CAGRs over the 2023-2027 forecast period.

Software as a Service (SaaS) - Applications will be the largest category of cloud computing, capturing roughly 40% of all public cloud spending. SaaS - Applications will also see the slowest spending growth over the forecast period with a five-year CAGR of 15.8%, IDC finds.

The leading SaaS applications will be enterprise resource management (ERM) and customer relationship management (CRM), followed by content workflow and management applications and collaborative applications, according to the analysts.

Infrastructure as a Service (IaaS) will be the second largest category of public cloud spending, followed by Platform as a Service (PaaS). PaaS spending will be the fastest growing category with a five-year CAGR of 27.2%, led by purchases of data management software, application platforms, and analytics and business intelligence software. IaaS spending, comprised of compute, storage, and networking devices, will be the second fastest growing category with a CAGR of 23.5%.

SaaS - System Infrastructure Software (SIS) will be the smallest category of cloud spending, representing roughly 15% of the overall market. Security software will be the largest area of investment in this category, rivaling ERM spending in the SaaS applications category. Physical and virtual computing software will see the fastest spending growth among the SIS products.

In terms of regions, IDC finds the United States will be the largest geographic public cloud market with spending forecast to reach $697 billion in 2027. Western Europe will be the second largest market in 2027 with investments totaling $273 billion, followed by China at $117 billion. Latin America will see the fastest spending growth with a five-year CAGR of 29.1%, followed by China with a CAGR of 26.9%.

The Worldwide Software and Public Cloud Services Spending Guide quantifies public cloud services spending by cloud type for 28 industries and five company sizes across nine regions and 53 countries.