Cloud providers Amazon, Microsoft and Google are facing spending cuts
The Amazon Web Services logo at the Web Summit in Lisbon.
Henrique Casinhas | Sopa pictures | Lightrocket | Getty Images
The cloud computing market continues to grow as companies move an increasing number of workloads out of their own data centers, but executives from the leading cloud providers said this week that clients are looking for ways to reduce costs.
The result is slowing revenue growth in the cloud divisions run by Amazon, Microsoft and Google. And for Amazon Web Services, a leader in the field, it means a slimmer operating margin and less profit for the parent company.
It is a phenomenon that began in 2022, when fears of a recession hit the economy. AWS saw slowdowns in the third and fourth quarters, and last quarter Microsoft CFO Amy Hood spooked analysts with comments about a decline in December that she expected to persist.
Amazon’s chief financial officer Brian Olsavsky brought bad news to investors on Thursday, when he said that in April AWS revenue growth had declined by about five percentage points from the first quarter’s growth of nearly 16%. The company’s share price fell in response.
Amazon CEO Andy Jassy said “what we’re seeing is that businesses continue to be cautious about their spending in these uncertain times.”
At Google, cloud growth slowed to 28% year-over-year in the first quarter from 32% in the previous period. The slowdown occurred even as Google’s cloud segment reached profitability for the first time on record.
“We saw some headwinds from slower growth in spending with customers really looking to optimize their costs given that macro climate,” Ruth Porat, Alphabet’s chief financial officer, said on Tuesday’s earnings call.
Sundar Pichai, Alphabet’s CEO, said the decline is understandable.
“We’re leaning towards optimization,” he said. “This is an important moment to help our customers, and we have a long-term view. And so that’s definitely an area that we’re leaning into and trying to help customers make progress on their efficiency where we can.”
The companies remain optimistic that the cloud will continue to be a strong market for technology, as businesses still have a long way to go before they will fully reap the benefits.
“People sometimes forget that more than 90 percent of global IT spending is still on-premises,” Jassy said.
And Hood noted that pretty soon the financial comparisons will be against numbers from that point last year when the market softened.
“Once you start celebrating it, you see it get a little easier as far as the competitions go from year to year,” Hood said.
SEE: The ongoing slowdown in IT expenditure is not reflected in technology income