An exposition hall at an Amazon Web Services conference in Las Vegas in November.
Noah Berger/Getty Images for Amazon Web Services
The technology industry is now facing another big problem: a cloud-computing slowdown.
This past week, the owners of the three major U.S. cloud computing providers—
Microsoft
Azure, Amazon Web Services, and Google Cloud—all reported significant slowdown in revenue growth rates. That is a problem both for them and for the companies that make the chips and other gear underpinning those cloud services.
For the December quarter, the year-over-year growth rate at
Microsoft
‘s (ticker:
MSFT
) Azure slowed to 31% from 35% in the prior quarter, while
Amazon.com
‘s (AMZN) Amazon Web Services’ growth decelerated to 20% from 28%.
Alphabet
‘s (GOOGL) Google Cloud came in at 32% growth for the fourth quarter, down from 38% in the prior quarter.
The latest commentary on business trends isn’t much better. On its call with investors, Microsoft said business weakened through December and Amazon said on Thursday that growth at AWS in January was down to the midteens.
Cloud spending was supposed to more resilient in a slowing economy. The shift from legacy on-premise technology systems to cloud projects offered greater flexibility, reliability, and efficiency, the argument went. But it seems the uncertainty over the economy is now compelling companies to cut back on their technology budgets and growth initiatives for the cloud area too.
Cloud computing “growth is slowing and will likely continue to slow through the March quarter,” MoffettNathanson analyst Sterling Auty wrote in a note to clients Friday after assessing the earnings results.
It wasn’t just cloud-computing customers who are tightening their belts. On Wednesday,
Meta Platforms
(
META
), the parent company of Facebook and Instagram, also announced plans to reduce its 2023 capital expenditures budget to a range of $30 billion to $33 billion from its prior forecast of $34 billion to $37 billion. The social media company said the lower outlook reflected a need to be more efficient in building its data centers.
Citing economic headwinds, industry research firm TrendForce lowered its 2023 growth forecast this week for server purchases by the four large U.S. technology companies—Microsoft, Google, Amazon Web Services, and Meta—to 4.4% from 6.9%.
A slowdown in cloud and data center demand would be detrimental for a number of technology suppliers that make server processors and memory chips. On the list are companies such as
Intel
(
INTC
),
Advanced Micro Devices
(
AMD
),
Micron Technology
(
MU
), and
Nvidia
(
NVDA
).
Write to Tae Kim at tae.kim@barrons.com
Credit: marketwatch.com