Top cloud providers Amazon, Microsoft and Google face ongoing spending cuts by clients

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

The result is a slowdown in revenue growth in cloud divisions run by Amazon, Microsoft and Google. And for Amazon Web Services, the leader in the space, that means a smaller operating margin and less profit for the parent company.

It’s a phenomenon that began in 2022 when recession fears hit the economy. AWS saw a slowdown in the third and fourth quarters, and last quarter Microsoft CFO Amy Hood spooked analysts with comments about a slowdown in December that she expected to continue.

Amazon CFO Brian Olsavsky was the bearer of bad news for investors Thursday when he said AWS’s April revenue growth fell about five percentage points from the first quarter’s growth rate of nearly 16 percent. The company’s share price fell in response.

Amazon CEO Andy Jassy said “what we’re seeing is that businesses continue to be cautious in their spending in this uncertain time.”

At Google, cloud growth slowed to 28% year-over-year in the first quarter from 32% in the prior period. The slowdown came even as Google’s cloud segment turned a profit for the first time in history.

“We’ve seen some headwind from slower consumption growth with customers really looking to optimize their spending given this macro climate,” Ruth Porath, Alphabet’s chief financial officer, said on Tuesday’s earnings call.

Sundar Pichai, CEO of Alphabet, said the delay was understandable.

“We’re betting on optimization,” he said. “This is an important time to help our customers and we are looking at the long term. So that’s definitely an area that we’re targeting and trying to help customers make progress in terms of their efficiency where we can.”

Companies remain optimistic that the cloud will continue to be a strong technology market, as businesses still have a long way to go before fully reaping the benefits.

“People sometimes forget that more than 90 percent of global IT spending is still on-premises,” Jassi said.

And Hood noted that very soon the financial comparisons will be against year-ago numbers, when the market was softening.

“When you start hitting that anniversary, you see it gets a little easier in terms of racing year after year,” Hood said.

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