Published in Cloud

Cloud sales starting to slow

by on24 April 2023

Analysts expecting the slowest growth for a decade

Demand for cloud-computing services is slowing and Microsoft and Amazon are expected to report the slowest revenue growth for their cloud-computing businesses since the firms started breaking out performance last decade.

For years, demand for cloud-computing services has steadily driven growth at both Microsoft and Amazon Microsoft's Intelligent Cloud unit, which is home to its Azure cloud-services business, accounted for 38 per cent of its revenue and 39 per cent of operating income in 2022. Amazon Web Services was the fastest-growing of the Seattle-based company's major businesses last year and generated $22.8 billion in operating income. The rest of Amazon's businesses combined posted a $10.6 billion operating loss.

For both companies, cracks are starting to appear. In the first three months of 2023, growth for Microsoft's Azure unit and Amazon Web Services is expected to fall to 31 per cent and 14 per cent, respectively, excluding currency fluctuations, according to the average of analyst estimates compiled by Bloomberg. A year ago, Azure sales expanded 49 per cent and Amazon Web Services 37 per cent.

In a shareholder letter released last week, Amazon said AWS was suffering a bad case of the "short-term head winds" which were caused by an economic backdrop that will "soften" the growth rate. Basically, the same cliche which is being parrotted by most companies at the moment with a completely lack of originality. 

Vole warned of a slowdown in cloud software sales last quarter and UBS lowered growth estimates for Azure last week, warning "customer efforts to optimize/trim their cloud spend will be deeper and last longer than most think." Jefferies sees slowing cloud demand as "a key concern" for Amazon. Analyst Brent Thill said that because AWS generates so much of Amazon's operating income, "a stabilization in cloud is crucial for shares to outperform."

For Alec Young, chief investment strategist at MAPsignals, Microsoft and Amazon remain attractive despite the slowdown, which he expects to be a temporary pause before growth re-accelerates.

"There's still a lot of runway ahead for cloud computing, so I don't think investors should obsess too much over the level of growth over a couple quarters," he said.


Last modified on 24 April 2023
Rate this item
(1 Vote)

Read more about: