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HomeMarketCloud Stocks Tumble After Amazon Earnings Signal Stormy Skies Ahead

Cloud Stocks Tumble After Amazon Earnings Signal Stormy Skies Ahead

The outlook for Amazon Web Services spells trouble for other cloud names.

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Photograph by Andrew Harrer/Bloomberg

It’s happening again, first with
Microsoft
and now with
Amazon.com.
Gloomy guidance from tech giants working in the cloud space is hammering smaller names.

Cloud stocks were down across the board in premarket trading Friday, with
Cloudflare
(ticker: NET) sliding 4%,
Snowflake
(SNOW) falling 3%,
Palo Alto Networks
(PANW) 1.5% in the red, and
Salesforce
(CRM) losing 1.5%.

To blame was
Amazon
(AMZN), which tumbled 5.6% in premarket trading after earnings late Thursday. The tech and online retailing giant beat Wall Street estimates on sales growth but fell short on profit. The gloom among investors came in part from guidance of a softening macro backdrop, with economic pressures likely to hit the critical
Amazon
Web Services (AWS) cloud business, which saw revenue come in short of analysts’ estimates.

Even worse, Amazon guided for AWS sales in the current quarter far below what Wall Street anticipated, with a bounce-back in growth not due until much later in the year—and likely dependent on macro forces outside the company’s control. It was a similar story as the one spelled out in
Microsoft
‘s (MSFT) recent earnings, where the outlook for its Azure cloud business ushered in last week’s slide in the same cloud stocks.

“The cloud growth commentary [from Amazon] seemed straightforward in terms of Q3 being a likely trough, however, given the challenged tone around enterprises being slow-going to close/implement deals, it felt to us like a fuller recovery/reacceleration seems as dependent on a macro rebound as much as simply lapping tougher comps,” Brad Erickson, an analyst at RBC Capital Markets, wrote in a note.

It wasn’t inspiring much optimism in the stock market, with cloud names firmly in the red. Even shares in Microsoft, which already reported its own bad news, was down 1.3%. The narrative is building that a softening macroeconomic picture will lead companies to spend less on services, which is bad for cloud providers.

But it’s not all bad news. While there’s a rough patch ahead, cloud services—software, computing, data storage, security—remains a booming space ripe for a rebound.

“We’ve no doubt that ex-macro, the secular trend of cloud migration remains in the mega-trend bucket,” Erickson said.

Investors just aren’t seeing that after Amazon’s bombshell.

Write to Jack Denton at jack.denton@barrons.com

Credit: marketwatch.com

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