The cloud boom has hit its stormiest moment yet, and it is costing investors billions

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The cloud boom has finally reached the height of comfort, but Wall Street is doing anything but relaxing.

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The original pioneer in cloud computing, confirmed Thursday that Microsoft Corp. What is MSFT rival?
and Alphabet Inc. GOOGLE,

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suggested with its earnings report earlier in the week: Cloud-computing growth has finally reached a plateau, as companies around the world cut costs to address a slowing economy. Amazon Web Services, the backbone of Amazon’s profit, saw its slowest growth in revenue on record, and executives said it would slow even further.

“Back end of the quarter, we were more in the mid 20% growth range, so take that forecast to the fourth quarter — we’re not sure how that’s going to play out, but that’s generally our assumption,” Amazon Chief financial officer Brian Olsavsky told analysts after reporting quarterly growth of 27.5%.

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It was a shocking slowdown for AWS, which posted 33% growth in the second quarter, 37% growth in the first, 37% in the fourth quarter of 2021, and 39% from a year ago. This shouldn’t have come as much of a surprise, though: smaller rivals reported a similar slowdown earlier this week.

Microsoft’s Azure cloud business grew 35% in its fiscal first quarter, up from 40% last quarter and 50% a year ago, and executives predict another five-percent-plus drop this quarter. Alphabet’s Google Cloud is also slowing, even though it was the bright spot for double-digit growth in a disappointing quarter for the internet advertising and search giant. Google’s cloud service grew 37.6% in the third quarter, up from 35.6% in the second quarter, but down from 43.8% in the first quarter and 44.6% in the fourth quarter.

Regular readers of this column shouldn’t be too surprised, as we predicted three months ago (perhaps a little while ago) that a recession was coming. It probably should have been in 2020, but the COVID-19 pandemic has prompted companies to boost their cloud services, as remote working suddenly made the move to the cloud essential to many businesses.

Recently, however, the largest businesses with the most complex workloads have been shutting down or shutting down major projects, and cutting their spending on the cloud-computing power they’ll need to support hem.

“There are three parts to the cloud recession,” said Maribel Lopez, principal analyst at Lopez Research, who joined MarketWatch earlier this year to predict a slowdown in cloud-spending. related to creating what companies did to keep the lights on during COVID,” leading to the cutbacks we’re seeing now. Second, the recent waves of cloud workloads by industries that are still slow to move to the cloud. Moving steps – such as those of government, healthcare and education – are “the most complex, time-consuming, and challenging to move quickly to the cloud.” Finally, there is a general fear related to the macroeconomic environment, causing officials anywhere can cut.

Reading Cloud Boom is coming back to Earth.

Wall Street has reacted swiftly and strongly, jumping more than $300 billion in market cap from Microsoft and Amazon just this week, if Amazon’s massive decline continues in the session after Thursday. But this is where it helps to think about the long-term outlook: Just because cloud growth is declining doesn’t mean the technology isn’t still core to the future.

Microsoft and Amazon will continue to develop and sell their cloud-computing offerings, and they will see healthy margins on them. Google continues to invest in its cloud business, adding 2,000 new employees last quarter through its acquisition of Mandient, and executives said this week that businesses and governments are still in the early days of public cloud adoption.

“We are pleased with the momentum in the cloud and excited about the long-term opportunity,” Ruth Porat, Alphabet’s chief financial officer, told analysts this week.

Many analysts agree. Dan Ives, an analyst at Wedbush Securities, said in a note about Microsoft this week that “the transition to the cloud is still less than 50%.” Growth is slowing as inflation continues and the strong dollar outside the US strains the revenue lines of many tech giants, causing many companies to stall in their spending, but that’s a short-term problem.

Going to a cloud provider isn’t for the faint of heart, and it’s a transition that in some cases takes longer than expected. The same applies to investing in the cloud for the long term, albeit with some pain right now. It is still a large and important part of the tech sector, an essential business that has enabled companies to operate around the world during the pandemic. Whatever the future growth rate, the cloud appears to be here to stay.

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