Cloud service providers Amazon, Microsoft and Google face spending cuts

The Amazon Web Services logo at the Web Summit in Lisbon.

Henrique Casinhas | Soba photos | Light Rocket | Getty Images

The cloud computing market continues to grow as companies move an increasing number of workloads out of their data centers, but executives from leading cloud vendors said this week that customers are looking for ways to cut costs.

The result is slowing revenue growth in the cloud divisions run by Amazon, Microsoft and Google. And for Amazon Web Services, the industry leader, that means a lower operating margin and lower profit for its parent company.

It is a phenomenon that began in 2022, as recession fears hit the economy. AWS experienced slowdowns in the third and fourth quarters, and last quarter Microsoft CFO Amy Hood spooked analysts with comments about the slowdown in December that she expected would continue.

The bearer of bad news for investors was Brian Olsavsky, Amazon’s chief financial officer, Thursday, when he said that in April, AWS revenue growth was down about five percentage points from its roughly 16% first-quarter growth rate. The company’s share price fell in response.

“What we’re seeing is companies continuing to be careful with their spending in this uncertain time,” said Andy Jassy, ​​CEO of Amazon.

At Google, cloud growth slowed to 28% year-over-year in the first quarter from 32% in the prior period. The slowdown occurred even as Google’s cloud segment reached profitability for the first time ever.

“We’ve seen some headwinds from slower consumption growth with customers really looking to improve their costs given this overall climate,” Ruth Porat, Alphabet’s chief financial officer, said on Tuesday’s earnings call.

Alphabet CEO Sundar Pichai said the slowdown is understandable.

“We tend to improve,” he said. “This is an important moment to help our customers, and we take a long-term view. And so it’s definitely an area that we’re leaning into and we’re trying to help customers advance their efficiencies wherever possible.”

Companies remain optimistic that cloud computing will continue to be a strong market for the technology, as companies still have a long way to go before they fully reap the benefits.

“People sometimes forget that more than 90 percent of global IT spending is still domestic,” Jassy said.

Hood noted that very soon the financial comparisons will be against the numbers from last year when the market was falling.

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

He watches: The continued slowdown in IT spending is not reflected in technology earnings