Cloud helped super-charge tech profits during the pandemic — but recession belt- tightening could bring demand down to earth
Choose your fighter… OG Word Doc on your hard drive vs. Google Doc in the cloud. Amazon, Microsoft, and Google control nearly two-thirds of all cloud spending (think: companies storing their data on other companies' servers vs. on-premises). They reported mixed results last week and have seen their stocks plunge this year as higher interest rates and slower ad spend hurt growth prospects. But cloud has been a silver lining. Last quarter:
- Amazon’s AWS (the #1 cloud service) grew revenue by 33% to $19.7B, and accounted for all of the ‘Zon’s profits as its core shopping biz continued slowing.
- Microsoft’s Intelligent cloud revenue (which make up more than a third of its sales) grew 26% thanks to corporate customers like GM and Kraft-Heinz.
- Google’s cloud revenue climbed 35%, but the pace of growth slowed and the cloud division lost $858M.
Crank up the AWS storage… The pandemic drove massive corporate cloud spending as millions of Americans worked from home. Big companies leveraged their cash-flush coffers to quickly expand their cloud infrastructure to meet demand. The hot streak continued this year, with global enterprise cloud revenue up 34% in the first quarter. But the boom might be slowing.
Storm clouds may be brewing… Investors have looked to the cloud as a profit cushion for tech companies when ad sales and consumer demand slow. But recession fears, rising costs, and slowing growth could push companies to cut and reevaluate cloud spend to boost their own profit margins. Analysts expect cloud growth to slow by half in the coming years. Still, cloud giants’ pricing power could allow them to raise costs to keep revenues afloat. In March, Google hiked its cloud storage prices by as much as 50%.