- The slew of big tech earnings confirmed that cloud growth is slowing and no one is immune.
- Microsoft, Amazon, and Google all say customers are looking for ways to lower their cloud bills.
The slew of recent big tech earnings confirmed what investors had been fearing — cloud growth is slowing, especially as companies look to cut costs amid a worsening economic outlook.
That's not to say growth has come to a halt: Revenue is still rising at Amazon's AWS, Microsoft's Azure, and Google's Cloud Platform — it's just rising at a slower rate than in previous quarters.
These charts show just how much cloud growth slowed at the big three cloud providers:
When Microsoft reported earnings results, Wall Street was shocked to see just how much cloud spending had slowed. Azure growth fell to around 30% year-over-year. In the same quarter last year, it had logged 50% growth from the year prior. Microsoft doesn't report actual revenue numbers for Azure.
Microsoft CEO Satya Nadella acknowledged customers of Azure's cloud services were cutting spending, but said he's optimistic spending will bounce back.
Wall Street analysts were less sanguine. Analysts at RBC summed up investor sentiment: "While we remain optimistic for a rebound in the second half once companies work through optimizations (and hopefully macro starts to show signs of recovery), we believe it is important not to get ahead of ourselves as this could prove to be transitory."
The slowdown had analysts reevaluating their expectations for the rest of the cloud industry because Microsoft is a good barometer of overall cloud spending: It has a varied customer base and, in addition to Azure, has cloud software offerings.
Analysts also knocked down expectations for Amazon Web Services, or AWS:
Of the big three cloud providers, AWS had the slowest year-over-year growth at 20%. That's half the amount of growth it saw in Q4 of 2021.
Some analysts said that doesn't affect what really matters — AWS's market share. It still remains ahead of its competitors Microsoft Azure and Google Cloud Platform in terms of actual revenue and business.
"Most will still likely focus on the lower percentage growth compared to over 30% for competitors' cloud businesses in the quarter, which we believe comes down more to scale and broader start-up exposure," analysts at William Blair wrote in a note to clients. "We also note that in absolute dollar terms, Amazon continues to take share."
Still, Wall Street was shaken by how much AWS revenue slowed. They had lowered expectations after Microsoft reported earnings a week prior, but the actual AWS results were even lower than that.
That's likely due to how widespread its customer base is. AWS has many customers in the startup space, which are generally looking to cut costs right now. Additionally, industries like financial services and advertising are getting hit with the downturn and need less computing power from their cloud providers. This is all weighing on AWS.
"AMZN is arguably the strongest, most successfully diversified company. It is also arguably, however, the coverage company most exposed to macro-economic shocks — inflation in fuel, shipping, labor, resources," said Evercore ISI analyst Mark Mahaney.
AWS's growth is expected to continue to slow even further in the quarters ahead, Amazon CFO Brian T. Olsavsky said on a call with Wall Street analysts. He said AWS's growth could notch down even further into the mid-teens this quarter, and that he couldn't predict beyond that because it's "uncharted territory economically."
Google's cloud infrastructure business isn't as big as Amazon's or Microsoft's, but it's also seeing a similar slowdown in growth. Google's executives echoed what their peers at Microsoft and Amazon said about customers cutting spending.
Analysts point out that 32% growth is not bad for Google, since it's still a growing business for them, and was a "bright spot" among its other business units.
"Fundamentally this is still a relatively premium growth rate," Evercore ISI's Mahaney said in a note to clients. Management spent a lot of time focusing on its path to profitability for Cloud, to which Mahaney said "we will be patiently waiting."
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