The slowdown in cloud computing sales growth for Amazon.com, Microsoft and Alphabet's Google will likely worsen when March-quarter earnings come in for MSFT, GOOGL and AMZN stock. The most downside is expected for Amazon Web Services, the biggest provider of cloud services.
After years of torrid growth, cloud computing revenue growth began slowing markedly in 2022. Some of that is attributable to the law of big numbers — growth was expected to moderate at some point. AWS sales rose 29% to $80.1 billion in 2022.
Another factor is that some corporate customers have been rethinking how to most efficiently utilize cloud services. Also, more companies could cut cloud spending if the U.S. economy falls into a recession.
AMZN Stock: Cloud Computing Slowdown For AWS
In the March quarter, Wall Street analyst estimates call for revenue growth for AWS to slow to 15% from 37% a year earlier, said a Jefferies report.
Meanwhile, UBS expects AWS sales growth to slow to 13% in the March quarter.
"Customer efforts to optimize/trim their cloud spend are well beyond any historical norm and our checks suggest that optimization efforts will be deeper and last longer than most think," AMZN stock analyst Karl Keirstead of UBS said in a note to clients.
He added: "Relative to the consensus view that we're deep enough into these efforts such that the deceleration in cloud growth can begin moderating meaningfully as early as Q2 2023, we conclude that such efforts will persist at a high level throughout 2023."
Microsoft and Google earnings are due April 25. Amazon has not yet set a date to report.
Negatives For GOOGL Stock
Slowing cloud revenue growth is a negative for AMZN, MSFT and GOOGL stock. It's also a headwind for many software and cloud infrastructure makers. Warehouse-size internet data centers are packed with computer servers, data storage devices and high-speed communications gear.
Jefferies analyst Brent Thill in a report said Wall Street consensus estimates on AMZN stock expect AWS revenue growth to "trough" in the June quarter of 2023, then slowly reaccelerate.
"Investors remain concerned around the durability of AWS growth as customers shift to cost optimization and delay broader transformations during a period of increased budget scrutiny," Thill said.
He added: "We are cutting our 2023 AWS estimate by 3.5% and now expect 12% AWS growth in fiscal 2023 (1% below consensus)."
According to UBS, consensus estimates for Google Cloud have come down to 28% revenue growth in Q1 2023, down from 44% growth in the March quarter of 2022.
MSFT Stock: Dealing With Slowdown
The March quarter marks Microsoft's fiscal third quarter. Revenue growth at Microsoft's Azure cloud unit is expected to be 30%, down from 49% a year earlier.
In addition, Jefferies' Thill expects pricing pressure to continue.
"AWS operating margin remains under pressure since peaking at 35% in Q1 2022, with Q4 2022 AWS operating margin of 24.4% representing the lowest levels since Q2 2017," the AMZN stock analyst said.
In the "public" cloud market, customers rent servers and data storage as needed. The cloud giants sell processing power and data storage by the hour, week, month or year. Also, the cloud companies have been pushing new consumption-based services.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
