Dark skies ahead for Big Tech's cloud growth
STORY: Big Tech led U.S. markets on a sharp rebound to kick off 2023. But the message from their earnings this week was: not so fast.
Apple, Google parent Alphabet and Amazon all posted results for the end-of-year quarter that left a sour taste in investors' mouths.
The reports renewed questions about global economic demand, the effect of higher interest rates and whether the market's January rally got ahead of itself.
And they also reinforced concerns about what is normally a lucrative source of profit: cloud services.
Amazon and Microsoft - which together dominate the cloud market - showed growth in the business was at its lowest since they started breaking out the metric in 2015, and was on track to slow even further.
Microsoft posted growth of around 50% in its Azure cloud-computing business for each quarter of calendar 2020, when many were forced to work and study at home. Meanwhile, market leader Amazon Web Services, or AWS, reported a sales jump of about 30% during the same period.
But, times have changed.
Growth at AWS slowed to a record low of 20% in the last three months of 2022.
And Microsoft’s current-quarter revenue forecast for its so-called intelligent cloud business, which includes Azure, was below analysts’ estimates.
That’s troublesome news for both companies – especially as a slowing economy has hit other parts of their businesses.
There is, however, a potential silver lining: a boom in artificial intelligence after the viral success of ChatGPT, made by OpenAI. Analysts told Reuters that AI applications like ChatGPT could boost demand for cloud services again as they require massive computing power, a boon for companies whose services help run the technology.