UBS analysts warned Tuesday that broader cloud-computing spending growth could slow this year, posing risks to Amazon, as well as cloud rivals Microsoft and Alphabet. Amazon stock has been squeezed by fears about the impact of tariffs on its e-commerce business, but the uncertainty could also bite into the growth of its cloud business, an analyst cautioned.
UBS analyst Karl Keirstead said checks with executives in charge of IT spending showed a shift in tone compared to the optimism of three months ago.
"Completely gone are the 'green-shoot' comments about an improving 2025 IT spending backdrop, replaced instead by anecdotes about budget cuts or warnings that they could be coming," Keirstead said in a client note. "While many enterprises are powering forward with plans to migrate more workloads to the cloud, several highlighted that they're either beginning to tap the brakes now or may do so in the event of a sharper downturn."
Spending on training AI algorithms and a fading cost "optimization" trend helped boost growth last year for the so-called Big Three of cloud infrastructure: Amazon Web Services, Microsoft Azure and Google Cloud.
UBS expects core cloud infrastructure spending growth will "decelerate" this year, though it could be offset by growth in spending to train and run AI algorithms in the cloud.
"Bottom line," Keirstead wrote, "we think (Wall) Street estimates for the cloud providers throughout 2025 look too high and need to be further de-risked."
Growth Estimates For AWS
UBS said AI infrastructure spending remains strong but companies are considering ways of cutting back on other cloud-computing costs. Data analytics tools and data management were also listed as spending priorities.
Each of the big three cloud providers will report earnings soon, starting with Google on Thursday. Microsoft reports next Wednesday, April 30. Amazon reports May 1.
For each company's March-ended quarters, Keirstead said Wall Street cloud revenue growth estimates "seem doable." But estimates for quarters later this year appear more difficult. Keirstead said current estimates would require "record (frankly, blowout) sequential dollar adds."
Consensus estimates for cloud growth later this year at each company will need to be "ratcheted-down, even if AI-driven cloud revenues remain strong," the UBS analyst added.
Amazon Stock Down 21% This Year
AWS is closely watched by investors because it is a key profit source. Last year the cloud business accounted for 17% of Amazon's total revenue but 58% of its total operating income.
Amazon is investing significant resources to build data centers that serves AI demand. Chief Executive Andy Jassy defended the company's spending plans in a letter to investors earlier this month. Analysts project Amazon will spend $100 billion in capital expenditures this year, mostly focused on AI.
On the stock market today, Amazon stock is up 3% at 172.59. The stock is set to break a streak of five trading days with losses.
Still, Amazon is down 28% from a record high of 242.52 reached Feb. 4 and are down 21% year-to-date.
The current slump for Amazon stock began with its fourth-quarter results in early February, which beat earnings estimates but included a lower-than-expected sales forecast for Q1.
Since then, investors concerns have focused on a U.S.-China trade war that includes 145% tariffs on imports from China.
Analysts have been lowering their price targets for Amazon stock in recent weeks, citing tariff risks for products sold by Amazon from China. Raymond James analysts dropped Amazon as a "Strong Buy" pick on Monday.
