Key takeaways

• Edge Computing mega rounds stood out: Cloud Tech funding reached its highest in the past three years, raising USD 3.7 billion across 19 funding rounds (+4x QoQ and +1.5x YoY). Edge Computing accounted for ~82% of the total raised, led by EdgeConneX’s (USD 1.9 billion) and DataBank’s (USD 725 million) large-debt rounds to expand global data center capacity. Other Edge Computing startups Yondr, Hailo, and Blaize also raised USD 100+ million each, with a notable shift towards growth-stage rounds. Funding in Cloud-native Tech, Serverless Computing, and Cloud Optimization Tools saw significant gains, with Cloud Optimization Tools experiencing an exceptional 45x YoY growth.

• Red Hat launched RHEL AI: Red Hat Enterprise Linux AI (RHEL AI) enables the efficient, flexible deployment of AI models at the edge by providing optimized container images, hybrid cloud capabilities, and seamless integration with enterprise IT operations. It simplifies scaling AI across distributed edge environments, accelerating the adoption of AI-powered applications in resource-constrained, distributed settings.
• Focus on edge AI hardware innovation: The edge AI landscape witnessed a flurry of new chip releases, with EdgeCortix, Hailo, and Kneron introducing advanced edge AI accelerators and servers. Incumbents like Intel and AMD also made significant advancements, with Intel launching edge-optimized CPUs, GPUs, andFPGAs and AMD unveiling its Versal adaptive SoC. Alongside these hardware innovations, we noted numerous product announcements focused on enhancing Kubernetes adoption and capabilities in Cloud-native Tech.

• Simplifying AI deployments and enhancing edge management: Collaboration between incumbents and disruptors aimed to simplify and enhance AI deployments and edge management. Noteworthy partnerships included Vapor IO and VAST Data integrating edge and core AI systems and Red Hat with Intel, Cloudera, Veeam, and Nutanix to bolster AI, security, and virtualization. Additionally, Dell partnered with Nvidia to accelerate edge AI adoption.

• IBM acquired HashiCorp: IBM's acquisition of HashiCorp for USD 6.4 billion was a strategic move to enhance its hybrid cloud and AI capabilities. By integrating HashiCorp's tools into its Red Hat OpenShift platform, IBM plans to offer customers greater flexibility in cloud deployments. The combination of IBM's expertise (including Red Hat) and HashiCorp's security and management solutions is expected to create a holistic platform tailored for the AI era, strengthening IBM's position in the rapidly evolving cloud and AI market.
• Cloud-native Tech and Serverless Computing dominate activity: We tracked nine other M&A deals, primarily in Cloud-native Tech and Serverless Computing. Harness bolstered its product portfolio by acquiring Split Software, further strengthening its acquisition-driven growth strategy. Other notable transactions included EQT's purchase of WSO2, Timescale's acquisition of PopSQL, and SUSE's buyout of StackState.

• As the cloud and Edge Computing industries continue to evolve, several critical developments are shaping the landscape for GenAI adoption. Key players like Red Hat, SUSE, NVIDIA, AMD, and Intel have unveiled innovative products and platforms to enable the deployment of GenAI models across hybrid cloud and edge environments.
• Red Hat's RHEL AI and OpenShift AI, for instance, aim to make open-source AI more accessible and enterprise-ready, while partnerships between companies like VaporIO, Dell, and Red Hat are positioning them to capitalize on the GenAI revolution. Additionally, cloud optimization tools are increasingly incorporating AI-based features, such as Red Hat's "Lightspeed" and CAST AI's AI Advisor, to enhance cloud resource management and governance.
• These developments suggest a growing focus on making GenAI more scalable, cost-effective, and user-friendly across diverse cloud and edge computing setups, potentially removing key bottlenecks.

IBM expands cloud and AI capabilities with HashiCorp acquisition and RHEL AI launch

IBM acquired HashiCorp

Red Hat launched RHEL AI 

RHEL AI aims to make AI development more accessible, customizable, and scalable

Funding: Edge Computing mega rounds stand out; Cloud Optimization Tools makes a comeback

Analyst Take: Cloud Tech startups raised USD 3.7 billion during Q2 2024. This figure significantly exceeded the average quarterly funding of USD 1.3 billion over the past three years. The resurgence in cloud tech funding mirrored the broader uptick in global venture funding during this period.

Mega rounds from Edge Computing startups stood out, with EdgeConneX’s USD 1.9 billion and DataBank’s USD 725 million debt rounds to expand global data center capacity comprising ~70% of total Q2 funding. There was also a notable shift toward growth-stage funding, with Yondr, Hailo and Blaize each raising USD 100 million+. Yondr also plans to use the funds for data center expansion, while Hailo, and Blaize focus on advancing GenAI at the edge.

Other notable rounds included Vercel’s USD 250 million in Series E funding to advance AI-powered website generation and security products and Harness’ USD 150 million in debt funding to enhance its platform with GenAI and acquire Split Software.

• The funds raised, excluding DataBank and EdgeConneX, experienced a significant 3x QoQ growth, helping funding reach parity with the Q2 2023 level
• The median funding round size in Q2 2024 reached USD 48 million, a significant 2x increase from the previous quarter. This figure was also substantially higher than the trailing 3-year median round size of USD 18 million.

• Funding across all industry hubs saw significant gains, led by Edge Computing, which raised USD 3.1 billion, growing +4x QoQ (+128% YoY). This was followed by Serverless Computing with USD 290 million, a growth of +6x (+190% YoY). Cloud Optimization Tools raised USD 222 million after a dismal USD 12 million over the past three quarters. Cloud-native Tech grew a relatively moderate 15% QoQ to raise USD 152 million (+230% YoY).

• Growth rounds dominated the quarter, totaling USD 3.6 billion (highlighted by mega rounds from EdgeConneX and DataBank) and supported by Series C or later rounds from Hailo, SiMa.ai, Blaize, Aerospike, and Vercel.

Product updates: Edge AI ecosystem energized by a wave of hardware releases

Analyst Take: IBM’s (Red Hat) release of RHEL AI underscores its focus on hybrid cloud as a key enabler of AI. Unlike other tech giants developing proprietary approaches, IBM positions itself as an "open hybrid/multi-cloud provider" that can integrate with competitors' cloud services (AWS, GCP, Azure). By combining infrastructure automation, a leading enterprise Linux distribution, and AI capabilities, IBM aims to provide a holistic solution for enterprises looking to harness AI while maintaining control over their IT environments.

Meanwhile, edge AI chips from companies like EdgeCortix, Hailo, Kneron, Intel, and AMD enable powerful GenAI capabilities on resource-constrained edge devices. These chips accelerate LLMs and multi-modal AI workloads, enabling hybrid cloud-edge architectures that leverage the strengths of both. Software-driven approaches, particularly from EdgeCortix, are democratizing GenAI access by allowing the deployment of edge AI capabilities on existing hardware systems while providing flexible, updatable edge AI solutions that can continuously evolve to meet changing needs.

• Cloud Tech-GenAI integration took center stage. Numerous disruptors and incumbents persistently incorporated GenAI technologies into their product offerings, while many released products and services to facilitate GenAI workloads.

• Google Integrated Google Kubernetes Engine (GKE) into its Google Distributed Cloud (GDC) platform, allowing the deployment of IT infrastructure setups on any cloud
• Microsoft previewed a new service called "Automatic,” which is designed to streamline the setup of Kubernetes clusters on the Azure Cloud platform
• Mirantis released k0smotron 1.0, an open-source tool for deploying and managing Kubernetes clusters across any infrastructure—private clouds, public clouds, bare metal, or the edge
• Kubernetes introduced the 1.30 update with various feature updates and enhancements to improve resource utilization and scalabilities, fortify security measures, and provide better development support

• Kong commercially launched its Kong Konnect dedicated cloud gateways on Amazon Web Services (AWS)
• Docker released Docker Desktop 4.29 with Docker socket mount permissions in ECI, advanced error management, Moby 26, and new beta features
• Tetrate launched AuthService, an open-source project to simplify the deployment and management of the existing authorization service for the Istio service mesh

• FinOps Foundation (an initiative of the Linux Foundation) launched version 1.0 of its open-source billing standard, FinOps Open Cost and Usage Specification (FOCUS)
• Upbound released an enterprise-ready Crossplane solution, providing a unified control plane experience with security, automation, and centralized management for cloud-native platforms

• Vertiv launched SmartRow2, a new edge data center solution for streamlined edge deployments with increased scalability and flexibility
• ZEDEDA launched ZEDEDA Edge Sync to address connectivity obstacles in edge deployments that lack consistent access to the cloud
• Nokia introduced MX Grid to enhance operational technology (OT) responsiveness and decision-making in organizations

• Pinecone released Pinecone Serverless, a serverless vector database for production deployments, enabling complex AI applications
• SurrealDB released the beta version of Surreal Cloud, a fully managed version of its scalable database solution for serverless applications

Partnerships: Edge AI ecosystem strengthens through partnerships aimed at GenAI deployment

Analyst Take: Cloud Tech witnessed several notable partnerships, emphasizing advancements in AI, edge computing, and cloud-native workloads. A key trend is the collaborations aiming to simplify and enhance AI deployments and edge management. Noteworthy partnerships include Vapor IO and VAST Data, integrating edge and core AI systems, and Red Hat with Intel, Cloudera, Veeam, and Nutanix to bolster AI, security, and virtualization.

Dell and NVIDIA’s partnership aims to accelerate edge AI adoption through automated deployment and management platforms. Dell's NativeEdge now integrates with NVIDIA's AI Enterprise software stack, enabling developers to deploy AI applications at the edge using frameworks like Metropolis for video analytics and Riva for speech. The NativeEdge platform also integrates with ServiceNow's Now Platform, providing closed-loop automation for orchestrating, managing, and securing Edge AI workloads. These solutions simplify the customer experience and streamline operations, making it easier for organizations to implement and scale AI capabilities at the edge.

• There were 27 partnerships across the Cloud Tech space in Q2 2024, with Edge Computing (15) and Cloud-native Tech (11) leading the way. The goal of all partnerships was product collaboration.

• Red Hat partnered with Intel to enhance enterprise AI applications through the product, Red Hat OpenShift AI, leveraging various Intel processor technologies.
• Red Hat partnered with Cloudera to address the growing demand for AI workloads by enhancing cloud infrastructure security and robustness. Additionally, Cloudera is transitioning its public cloud infrastructure to Red Hat's newly unveiled RHEL AI platform.
• The partnership between Veeam and Red Hat aims to provide the necessary tools and support for organizations transitioning to OpenShift virtualization, which involves integrating virtual machines and containers.
• Nutanix and Red Hat expanded their collaboration to use Red Hat Enterprise Linux as the foundation for Nutanix's cloud platform, providing enterprise-ready Linux capabilities. 

• Redpanda’s partnership with Ockam to launch Redpanda Connect with Ockam, a zero-trust streaming data platform developed for large-scale enterprise use.
• Meanwhile, in Cloud Optimization Tools, the partnership between Anodot and YäRKEN aims to provide a cloud cost management solution that integrates on-premises and cloud environments, leveraging Anodot's AI-based optimization and YäRKEN's platform to align tech spending with business objectives.

• Dell NativeEdge introduced Azure Arc enablement automation to improve the Azure customer experience, enhance security at the edge, simplify edge operations, and advance AI capabilities.
• Dell NativeEdge integrates with ServiceNow's Now Platform to enable businesses to extend IT operations from the data center to the edge, simplifying edge computing resources' orchestration, management, and workflow.
• Dell NativeEdge became the first edge orchestration platform that automates the delivery of NVIDIA AI Enterprise, enabling the deployment of NVIDIA AI frameworks on Dell NativeEdge Endpoints powered by NVIDIA-accelerated computing.

• The partnership between Namla and NVIDIA, which aims to improve the scalability and management of edge AI deployments across various sectors by integrating NVIDIA's technology into Namla's edge AI platform.
• VaporIO partnered with VAST Data to simplify AI deployments for organizations, merging Vapor IO's Zero Gap AI and the VAST Data platform into an integrated edge-to-core AI system.
• Nearby Computing partnered with Kyndryl to provide combined edge computing services to customers. Kyndryl will use Nearby Computing's NearbyOne platform to simplify the deployment of industry-specific business applications at the edge.
• Nearby Computing and Alea partnered to automate and orchestrate Alea's mission-critical communications applications through Nearby Computing's edge computing platform.

• We observed no noteworthy partnerships in these industries during the quarter.

M&A: IBM bolsters cloud capabilities with HashiCorp acquisition during steady M&A period

Analyst Take: The number of deals during the quarter remained broadly flat (10 vs. 11 in Q1 2024). This was amidst a broader trend where the surge in US M&A activity observed in Q1 2024 experienced a slowdown during Q2. 

IBM’s USD 6.4 billion acquisition of HashiCorp strengthens its hybrid cloud capabilities by potentially integrating HashiCorp's multi-cloud infrastructure automation tools with Red Hat offerings.

Harness continued its M&A growth strategy, acquiring Split Software to enhance its products. This move comes after Harness' competitor, Octopus Deploy, acquired the struggling Kubernetes continuous delivery expert Codefresh in Q1 2024. Moreover, Suse, Timescale, Cloudflare, Finout, and Vercel enhanced their tech stacks and offerings through acquisitions. 

• IBM acquired HashiCorp for USD 35 per share, a significant premium over HashiCorp’s pre-announcement trading price of around USD 25.
• HashiCorp’s product pillars (Terraform, Vault) align well with Red Hat’s (IBM subsidiary) business and IBM's focus on the hybrid/multi-cloud market.
• In 2023, HashiCorp changed its business model, including a shift away from open-source licensing, which drew attention and new competitors.
• The transition to a SaaS-style cloud subscription business was taking longer than planned. The company's gross margins on cloud services were only around 60% (FY 2024), while its traditional support revenue had higher margins at 86%.

• Harness, a cloud-based software delivery platform, entered an agreement to acquire Split Software Inc., a company that specializes in feature flag management and experimentation.
• The acquisition will allow Harness to provide a more robust software delivery platform, including the ability to run A/B tests and measure the performance of new features.
• This is Harness' second acquisition in 2024 and its seventh overall. In January 2024, the company acquired Armory, a continuous delivery platform company, for USD 7 million. This acquisition announcement comes just weeks after Harness secured a USD 150 million debt financing round, backed by Silicon Valley Bank and Hercules Capital.

• Swedish investment giant EQT API management and identity access management company WSO2 in a deal valued at more than USD 600 million.
• SUSE, an open-source enterprise provider, acquired StackState's full-stack observability platform to integrate its capabilities into Rancher Prime.
• Timescale, a cloud database company, has acquired PopSQL, an SQL editor and collaboration tool, to offer Timescale customers an intuitive interface for database querying, dashboard creation, and collaborative data analysis.
• Redpanda, a streaming data platform, has acquired Benthos, an open-source stream-processing platform, to bolster its end-to-end streaming capabilities for data-intensive applications.
• Cloudflare acquired Baselime, a serverless application observability platform, to expand its capabilities and further enhance the developer experience for building, shipping, and troubleshooting applications on the Cloudflare platform.
• Vercel a provider of a serverless web and app development platform acquired ModelFusion.dev, expanding the capabilities of its Vercel AI SDK 3.1 to further position the company as a leader in the enterprise AI development space.
• OpenAI has acquired Rockset, a real-time analytics database, to enhance its retrieval infrastructure and enable users, developers, and enterprises to better leverage their data for more helpful AI applications.
• Finout, a cloud cost observability platform provider, acquired Cloudthread, a cloud analytics platform, to enhance Finout's cloud cost optimization and FinOps capabilities.

Appendix

Appendix 1: Cloud tech product updates

Appendix 2: Cloud tech partnerships

Appendix 3: Cloud tech startups added in Q1 2024

Appendix 4: Cloud tech funding rounds