Despite the promise of generative artificial intelligence to turbocharge cloud computing sales, growth rates in the sector remain stalled for Amazon, Microsoft, and Google.
All three cloud providers reported this week that cloud customers were still scrutinizing their IT budgets amid a shaky global economy. Cloud sales growth rates stalled this year as customers navigated rising inflation and destabilizing geopolitical conflicts.
Google on Tuesday disappointed investors after reporting revenue growth of 22% in its cloud unit for the quarter, down from a growth rate of 28% the quarter prior. The company told investors the stalled growth was due to “customer optimization efforts” — a nicer word for cost cutting.
Amazon’s cloud unit reported year-over-year revenue growth of 12% for this quarter and the previous one. At the same time last year, Amazon Web Services sales were growing by more than double that rate.
“Customer cost optimizations still remain a headwind,” Amazon’s chief financial officer, Brian Olsavsky, told reporters Thursday on a pre-earnings call.
Microsoft reported a 24% increase in cloud revenue for the quarter, though that was fueled by better-than-expected sales of AI services. The company has invested billions in OpenAI, the company behind ChatGPT, which has granted it a head start over Amazon and Google on selling AI services. GitHub Copilot grew 40% from last year, Microsoft CEO Satya Nadella said on Tuesday’s earnings call. But as with Google, sales of Microsoft’s cloud infrastructure and services are stalled as customers “optimize.”
While Google executives evaded analyst questions about cloud spending, Microsoft’s chief financial officer, Amy Hood, suggested that a persistently budget-conscious customer base is nothing to be alarmed by.
“Customers are going to continue to do that,” Hood said on the earnings call. “It’s an important part of running workloads. It’s not new.”
Nadella echoed Hood’s sentiment on Tuesday’s earnings call that slowed growth shouldn’t be a cause for concern.
“Workloads start, then workloads get optimized, then new workloads start,” Nadella said on the call. “We’ll lap some of those optimization cycles that were fairly extreme perhaps in the second part of our fiscal.”
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