Tech giants are sending mixed signals about the cloud market, but it’s still in the early innings of growth.
Shares of Amazon (NASDAQ: AMZN) were down 5.73% as of 2:43 p.m. ET on Wednesday following a disappointing earnings report from Google parent Alphabet after the market close on Tuesday.
Investors have high hopes that the recent spending push for artificial intelligence (AI) technology can drive strong growth for the cloud computing leaders, including Amazon. While Alphabet’s report disappointed, a strong report from Microsoft‘s cloud business suggests the opportunity is starting to ramp up.
Here’s why Wall Street soured on Amazon today
Amazon’s cloud services business (Amazon Web Services) has nearly doubled its annual revenue from 2020 through 2022. The business made up 16% of the company’s total revenue in the second quarter. But growth has slowed this year as customers tighten spending in an uncertain macro environment. This dynamic is still affecting Google Cloud’s growth.
Microsoft up, Alphabet down: S&P 500, Nasdaq drop as tech companies report mixed earnings
Interest rates: Fed Chair Powell signals central bank could hold interest rates steady next month
Alphabet’s third-quarter earnings report showed that companies are still reluctant to spend big on cloud services in an uncertain business environment. Google Cloud’s year-over-year (YOY) growth decelerated to 22% from 28% in the previous quarter.
However, Microsoft Azure posted strong growth of 29% YOY, which suggests the bull case is still alive for the cloud leaders.
Why Amazon stock is still a buy
Long-term investors shouldn’t be concerned about near-term demand trends in cloud spending. Comparing growth rates from one quarter to the next just creates confusion and noise that doesn’t matter in the grand scheme of things. Investors should be encouraged because it is still early days for the cloud market, especially as companies are just starting to figure out how to use AI with their data.
As the leader in cloud services, Amazon Web Services has a huge amount of data that customers will want to use with AI applications. That spells a big opportunity for Amazon over the long term.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. John Ballard has positions in Amazon.com. The Motley Fool has positions in and recommends Alphabet, Amazon.com, and Microsoft. The Motley Fool has a disclosure policy.
The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.
Offer from the Motley Fool: 10 stocks we like better than Amazon.comWhen our analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
They just revealed what they believe are the ten best stocks for investors to buy right now… and Amazon.com wasn’t one of them! That’s right — they think these 10 stocks are even better buys.
*Stock Advisor returns as of October 23, 2023
