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Cloud earnings show ‘slowdown’ still not out of the question

Earnings calls from Microsoft and Google show there’s still some gas in the tank for cloud providers
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Image: Getty via Future

26 April 2023

Recent earnings calls from Microsoft and Google have shown there is still a strong appetite for cloud computing services, despite warnings of a pending ‘cloud slowdown’ in recent months.

In an earnings call for the quarter ending 31 March, Microsoft recorded 27% growth at its Azure cloud division. While slower than the 31% recorded in the previous quarter, this exceeded analyst expectations, Microsoft said.

Microsoft attributed part of this growth to the ongoing hype surrounding the integration of generative AI products within its core service offerings.

In an investor call, CEO Satya Nadella said that the company’s cloud segment was reaping the benefits of AI integration within products. He noted that the firm now boasted more than 2,500 customers for its Azure OpenAI service.

Elsewhere, Google Cloud recorded its first operating profit in the history of the division in the previous quarter. The hyperscaler recorded $7.4 billion in revenue, amounting to a 2.5% profit.

Is a ‘cloud slowdown’ still possible?

These earnings – Google Cloud’s in particular – call into question recent claims that the global cloud market was bracing for a ‘slowdown’.

Deteriorating economic conditions, rising costs, and concerns around energy consumption prompted suggestions that the cloud market was entering a period of sluggish growth earlier this year.

Research from the Uptime Institute showed that hyperscalers such as AWS and Microsoft had recorded slower growth toward the end of 2022 amid challenging macroeconomic conditions.

“The global macroeconomic environment – specifically, high energy costs together with inflation – is making organisations more cautious about spending money,” the report warned.

“Cloud development projects are no different from many others and are likely to be postponed or deprioritised due to rising costs, skill shortages, and global uncertainty.”

But a landmark profit for Google Cloud and a quarter that exceeded expectations at Azure does not necessarily constitute a reversal of any slowdown.

Compared to pandemic-era highs, all three hyperscalers are still experiencing sluggish growth to some extent.

Google Cloud may have recorded an operating profit in this quarter, but in Q1 2021 the firm reported a staggering 58% growth as organisations across the globe flocked to the cloud.

Azure and AWS earnings of late also pale in comparison to that pandemic-era high in 2021 and early 2022.

Satya Nadella’s comments on generative AI benefits appear indicative of how the hyperscalers view the emergence of this new trend.

In recent weeks, AWS and Google have both outlined plans on how they plan to capitalise on generative AI to support core product offerings, and cloud services are most certainly in the crosshairs.

Earlier this month, AWS unveiled the launch of Amazon Bedrock, a managed service offering which it said offers customers the “easiest way to build and scale enterprise-ready generative AI applications”.

The launch of Amazon Bedrock was hailed as potentially a key differentiator for the hyperscaler due to its inclusion of access to third party large language models (LLMs) to support cloud developers.

Google also announced the launch of new generative AI tools for cloud developers this week, focusing specifically on bolstering security capabilities for customers within its own ecosystem.

The Google Cloud Security AI Workbench will offer users an ‘industry-first extensible platform’, powered by a specialised security-specific large language model (LLM) known as ‘Sec-PaLM’.

Future Publishing

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