© Reuters. FILE PHOTO: 3D printed figurines and clouds are seen in front of the AWS (Amazon Web Service) cloud service logo in this illustration taken Feb. 8, 2022. REUTERS/Dado Ruvic/Illustration/ File Photo
By Aditya Soni and Yuvraj Malik
(Reuters) – Big Tech results reinforce concerns that the boom in cloud services is easing, curtailing lucrative profits as a slowing economy has hit companies, businesses, and businesses. other businesses and driving bets on artificial intelligence as the next growth engine.
Earnings from Amazon.com Inc (NASDAQ:) and Microsoft Corporation (NASDAQ:) – which together dominate the cloud market – shows growth in the enterprise at its lowest since they started breaking the metric in 2015 and is on track to slow down.
Alphabet (NASDAQ:) Inc, which has the smallest cloud business of the three, said Google Cloud grew 32%, the slowest increase since the company began reporting. this measure in 2019.
The poor results reflect the post-pandemic saving trend of corporate clients, who have been on tight budgets over the past year due to high inflation and rising interest rates.
“Once considered the most defensive source of revenue in the tech sector, we are seeing investors question the cyclicality of the business,” said analysts at Bernstein. (cloud)”.
Cloud services have long been a reliable source of income for Microsoft and Amazon.
The Windows maker posted around 50% growth in its Azure cloud business for each quarter of 2020, as the pandemic forced people to work and study from home. Meanwhile, market leader Amazon Web Services (AWS) reported a roughly 30% increase in sales during the same period.
Times, though, have changed.
According to Refinitiv data, growth at AWS slowed to a record low of 20% in the final three months of 2022 to $21.4 billion, slightly below analyst estimates of 22, 03 billion USD.
Microsoft’s revenue in the so-called smart cloud business that includes Azure rose 18 percent from expectations from October to December. But its current quarter forecast is $21.7 billion to $22. billion dollars lower than the estimate of 22.14 billion dollars.
“AWS deceleration is even worse than expected and means Amazon can’t rely much on the operating margins of those business units,” said Andrew Lipsman, principal analyst at Insider Intelligence. in the coming quarters”.
Amazon CFO Brian Olsavsky said Thursday that the company expects slower cloud growth over the next few quarters. That echoes with Microsoft, which said last week that growth in its Azure cloud business would slow by 4-5 basis points in the March quarter.
“You’ve just had two years of rapidly moving workloads to the cloud, there can be a lot of inefficiencies in cloud spending, and now it’s important,” said James Cordwell, analyst at Atlantic Equities. The focus is shifting to greater efficiency.”
SILVER FLOOR AI
However, analysts say the potential for an AI boom following the viral success of OpenAI’s ChatGPT could spur demand for cloud services again. AI applications require massive amounts of computing power, a boon for companies whose services help run the technology.
As an investor and partner in OpenAI, Microsoft looks poised, analysts say, but any gains could take time to turn into profits.
“Those (AI) advancements and the need for related cloud services will take time to materialize,” Lipsman said. They are unlikely to offset current obstacles in the enterprise market. in the next few quarters”.
