After years of meteoric growth, fueled most recently by remote work and study during the pandemic, cloud demand has cooled over the past nine months and sales growth could slow further, analysts say.
End-user cloud spending on services, including those from the world’s largest providers – Amazon Web Services (AWS) and Microsoft’s Azure – is expected to grow 20.7% this year after growing 18.8% in 2022 and 52.8% in 2021, according to research firm Gartner.
“A lot of companies are slowing down their migration to the cloud or asking for a price drop on their existing plans,” said RBC Capital Markets analyst Rishi Jaluria.
Microsoft chief executive Satya Nadella said last week that companies were treading carefully because “some parts of the world are in recession and others are anticipating one.”
Azure is expected to grow 31% in the December quarter, according to Visible Alpha, its slowest growth since the Redmond, Wash.-based company began breaking down unit numbers in 2015.
AWS, Amazon’s lucrative cloud business from which it derives more than a quarter of its revenue, is expected to post a 24% increase in revenue in the quarter. It increased by 28% over the July-September period.
The slowdown is also expected to weigh on Alphabet Inc, the third-largest cloud services provider, a sign that the overall market is maturing, analysts said.
“Easy to move” workloads are already on the cloud and it will be harder for vendors to encourage enterprises to move the next batch of workloads to their platforms, broker UBS said earlier this month.
Microsoft has also been hurt by the collapse of the personal computer market, where its Windows software remains the dominant operating system. Amazon, too, is feeling the heat of slowing retail demand.
* Microsoft’s Q2 revenue is expected to rise 2.5% to $53 billion, the weakest growth in six years.
* Amazon’s Q4 revenue is expected to increase 5.8% to $145.40 billion.
THE WALL STREET FEEL
* 47 of 53 analysts rate Microsoft stock “buy” or higher, and have a median price target of $285.
* Microsoft stock has fallen 19% in the past 12 months.
* 48 of 52 analysts rate Amazon’s stock as “buy” or higher, and have a median price target of $135.
* Amazon stock has fallen 32% in the past 12 months.