news/GOOG/2023.02.03/Big Tech earnings face more heat as cloud cover fades.txt

Feb 3 (Reuters) - Big Tech results reinforced concerns a
boom in cloud services is easing, limiting a lucrative source of
profit when a slowing economy has hit the companies' other
businesses and prompting a bet on artificial intelligence as the
next growth driver.Earnings from Amazon.com Inc and Microsoft Corp
- 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
further.Alphabet Inc, which has the smallest cloud
business among the three, said Google Cloud grew 32%, the
slowest rise since the company began reporting the measure in
2019.The poor results reflect a shift to post-pandemic frugality
by corporate customers whose budgets have been squeezed in the
past year by high inflation and rising interest rates."Once thought as the most defensive revenue stream in tech,
we are seeing investors questioning the cyclicality for the
(cloud) business," analysts at Bernstein said.Cloud services had long been a reliable source of earnings
for Microsoft and Amazon.The Windows maker posted growth of around 50% in its Azure
cloud-computing business for each quarter of calendar 2020, when
the pandemic forced people to work and study at home. Meanwhile,
market leader Amazon Web Services (AWS) reported sales jump of
about 30% during the same period.Times, though, have changed.Growth at AWS slowed to a record low of 20% in the last
three months of 2022 to $21.4 billion, slightly missing
analysts' estimates of $22.03 billion, according to Refinitiv
data.Microsoft's revenue in its so-called intelligent cloud
business that includes Azure rose 18% to beat expectations for
October to December. But its current-quarter forecast of $21.7
billion to $22 billion was below estimates of $22.14 billion."The deceleration in AWS was even worse than expected and
means Amazon can't rely on that business units' operating
profits as much in coming quarters," said Andrew Lipsman,
principal analyst at Insider Intelligence.Amazon finance chief Brian Olsavsky said on Thursday that
the company expects slower cloud growth rates for the next few
quarters. That echoed Microsoft, which said last week that
growth in its Azure cloud-computing business would slow by 4-5
basis points in the March quarter."You've just come off two years of rapid movement of
workloads to the cloud, there's probably a lot of inefficiency
in cloud spending and now there is a shifting focus to greater
efficiency," said James Cordwell, analyst at Atlantic Equities.AI SILVER LININGA potential boom in AI after the viral success of OpenAI's
ChatGPT could boost demand for cloud services again though,
analysts said. AI applications require massive computing power,
a boon for companies whose services help run the technology.As an investor and partner of OpenAI, Microsoft looks well
poised, analysts said, but any gains may take time to translate
into profits."Those (AI) advancements and demand for related cloud
services will take time to materialize. They're not likely to
offset current headwinds in the enterprise market over the next
few quarters," Lipsman said.(Reporting by Aditya Soni, Yuvraj Malik, Akash Sriram and
Tiyashi Datta in Bengaluru; Editing by Sriraj Kalluvila)