Top cloud providers face ongoing spending cuts by clients

The cloud-computing market keeps growing as firms 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 and means to trim costs.

The result is slowing income growth at the cloud divisions run by Microsoft, Amazon, and Google.

It’s a phenomenon that started in 2022, as fears of a recession hit the market. Amazon Web Services saw a decline in the third and fourth quarters, and last quarter Microsoft finance Chief Amy Hood spooked analysts with comments regarding a slowdown in December that she expected to sustain.

Amazon’s finance chief was the bearer of bad news for investors when he expressed that in April, AWS income growth had declined by about five percentage points from the almost 16% of growth in the first quarter. The company’s stock price declined in response.

Amazon CEO Andy Jassy said, “What we’re seeing is enterprises continuing to be cautious in their spending in this uncertain time.”

At Google, cloud growth declined from 28% in the previous year in the first quarter to 32% in the earlier period. The slowdown occurred even as Google’s cloud platform reached profitability for the very first time on record.

Ruth Porat, Alphabet’s finance chief, said, “We saw some headwind from slower growth of consumption with customers really looking to optimize their costs given that macro climate.”

Sundar Pichai, Alphabet’s CEO, expressed that the slowdown is understandable.

He said, “We are leaning into optimization. This is an important moment to help our customers, and we take a long-term view. And so it’s definitely an area we are leaning in and trying to help customers make progress on their efficiencies where we can.”

The companies remain positive that the cloud will remain a strong market for tech, as businesses still have a far to go before they will fully take advantage of the benefits.

Jassy said, “People sometimes forget that 90-plus percent of global IT spend is still on-premises.”

Hood said, “When you start to anniversary that, you see it gets a little easier in terms of the comps year-over-year.”