The cloud boom has finally reached a resting altitude, but Wall Street is doing anything but resting.
the original pioneer in cloud computing, confirmed Thursday that it rivals Microsoft Corp.
and Alphabet Inc.
he suggested with his earnings reports earlier in the week: Cloud computing growth has finally stalled, as companies around the world cut costs to address the slowing economy. Amazon Web Services, the backbone of Amazon’s profits, saw revenue hit its slowest growth registered, and executives said it will slow down further.
“At the end of the quarter, we were more in the mid-range of 20% growth, so take that forecast into the fourth quarter, we’re not sure how that’s going to play out, but overall that’s our guess,” Amazon CFO said. . Officer Brian Olsavsky told analysts after reporting quarterly growth of 27.5%.
It was a jarring slowdown for AWS, which posted 33% growth in Q2, 37% growth in Q1, 37% growth in Q4 2021, and 39% growth a year ago. It shouldn’t have been much of a surprise, though: smaller rivals reported similar slowdowns earlier in the week.
Microsoft’s Azure cloud business grew 35% in its fiscal first quarter, down from 40% the previous quarter and 50% a year earlier, with executives forecasting another 5 percentage point drop this quarter. Alphabet’s Google Cloud is also slowing down, even though it was the bright spot of double-digit growth in disappointing quarter for internet search and advertising giant. Google’s cloud services grew 37.6% in the third quarter, up from 35.6% growth in the second quarter, but down from 43.8% in the first quarter and 44.6% in the fourth trimester.
Regular readers of this column shouldn’t be surprised either, as we predicted three months ago (perhaps just a little earlier) that a slowdown was coming. Probably should have happened in 2020But the COVID-19 pandemic prompted a rush of companies to push their cloud services, as remote work suddenly made the move to the cloud essential for many businesses.
More recently, however, the largest companies with the most complex workloads are shutting down or postponing major projects, and cutting back on the cloud computing power they would have needed to support them.
“There are three parts to the cloud slowdown,” said Maribel Lopez, principal analyst at Lopez Research, who joined MarketWatch in predicting a slowdown in cloud spending earlier this year. “One is related to reigning in and rationalizing the wild west of spending that companies did during COVID to keep the lights on,” which is causing the cuts we see now. Second, recent waves of cloud workloads from industries that are still slowly moving to the cloud, such as government, healthcare, and education, “are the most complex, time-consuming, and challenging to move quickly to. Cloud”. Lastly, it’s a general fear related to the macro environment, leading to cuts anywhere executives can find them.
Also read: The boom of the clouds returns to earth.
Wall Street has reacted quickly and forcefully, ripping off more than $300 billion in market capitalization from Microsoft and Amazon alone this week, if Amazon’s sharp drop in the after-hours session on Thursday persists. But this is where thinking about a longer-term view helps: Just because cloud growth is slowing doesn’t mean the technology isn’t yet critical for the future.
Microsoft and Amazon will continue to develop and sell their cloud computing offerings and see healthy margins on them. Google continues to invest in its cloud business, adding 2,000 new employees through its Mandiant acquisition last quarter, and executives said this week that businesses and governments are still in the early days of public cloud adoption. .
“We are pleased with the momentum in the cloud and remain excited about the long-term opportunity,” Alphabet Chief Financial Officer Ruth Porat told analysts this week.
Many analysts agree. Dan Ives, an analyst at Wedbush Securities, said this week in a note on Microsoft that “the move to the cloud still has less than 50% penetration.” Growth is slowing as inflation continues and the strong dollar outside of the US hits the revenue lines of many tech giants, causing many companies to pause their spending, but that’s a short-term problem. .
Moving to a cloud provider is not for the faint of heart and is a transition that in some cases takes longer than expected. The same will apply to investing in the cloud in the long run, even if there is some pain now. It remains a massive and important part of the technology sector, an essential business that allowed companies to continue operating around the world during the pandemic. Whatever the future growth rate, the cloud appears to stay.
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