Amazon, Google, Microsoft show slowing growth in cloud infrastructure

As the growth rate of traditional tech devices and software has slowed to a trickle in recent years, cloud computing has gobbled up spending, reflecting a dramatic shift in the way companies choose to run. application and data storage.

But over the past two weeks, the biggest names in cloud infrastructure have issued stark warnings suggesting that the frenzied expansion of the past half-decade is cooling off. in history high inflation and a steady increase in interest rate of the Federal Reserve has prompted businesses to cut spending and find ways to get more out of their existing infrastructure.

Amazon, Microsoft And Alphabet, the top three in the cloud-based server and hosting market, all reported slowdowns in their respective businesses. On Thursday, Amazon Web Services and Google Cloud, which also includes productivity software Workplace, showed fourth-quarter revenue that fell short of analyst estimates.

Ruth Porat, Alphabet’s chief financial officer, told analysts on the earnings call: “In Q4, we saw slower consumption growth as customers optimized GCP costs, reflect the macro context”.

Google Cloud revenue growth down to 32% in the fourth quarter from nearly 38% in the third period. Revenue of $7.32 billion was estimated by analysts at $7.43 billion, according to StreetAccount.

Amazon, which pioneered the market more than 15 years ago and maintains its lead, said AWS revenue growth has fallen from 27% to 20%. The sales recording unit $21.4 billion, while analysts predict $21.87 billion. As recently as 2018, AWS grew over 45%.

Brian Olsavsky, Amazon’s chief financial officer, told analysts that major companies worked with AWS in the fourth quarter to cut spending because of the tough economy, a trend that began in the middle of the third quarter. He doesn’t expect it to reverse anytime soon.

“As we look ahead, we expect these optimization efforts to continue to hamper AWS’s growth for at least the next several quarters,” Olsavsky said.

Amazon CEO Andy Jassy, ​​who started AWS with the company’s founder Jeff Bezos and ran the division until taking the helm of the parent company in 2021, then voiced the call to tout a powerful cloud migration system. However, according to a regulatory records, customers are showing less confidence in long-term transactions. Amazon reported a commitment of $110.4 billion for contracts with initial terms longer than a year. This is up 37% from a year ago, down from 57% growth in the third quarter.

Analysts at Bank of America have lowered their forecast for AWS and now expect growth for the year to be 11% instead of 15%. This number will drop from nearly 29% in 2022.

“We see the trajectory of the LT cloud bent rather than broken,” the analysts, who have buy ratings, wrote.

Results from Alphabet and Amazon as reported by Microsoft last week. Microsoft’s Azure unit ranks second in terms of cloud infrastructure behind AWS.

Microsoft says Azure and other cloud services grow in revenue down to 31% from 35%, although the company did not disclose the size of its business in dollars.

On the earnings call, Chief Financial Officer Amy Hood said Azure consumption growth moderated in December. The company expects Azure growth is even slower in the first quarter as organizations look for opportunities to run their existing applications in a more cost-effective way.

CEO Satya Nadella acknowledged that trend, but said it’s not permanent.

“At some point, the optimization will end,” Nadella said on the earnings call. “In fact, the money they save optimizing any workload is the amount they’ll invest in new workloads, and those workloads will start to grow.”

Nadella’s view is supported by at least some industry experts. Technology research firm Gartner is expecting this category to grow 26.8% overall for the full year, compared with 25.9% in 2022. Gartner’s forecast across the entire IT sector is growth revenue is 2.4%.

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