Microsoft warns of a cloud collapse: here’s why

Is the golden age of the cloud already over? The three market leaders, Microsoft, Amazon and Google, announce a decline in growth for the third quarter of 2022. A first setback that causes panic among investors…

After years of lush growth, the death knell of the slowdown seems to have sounded for the cloud. On Tuesday, October 25, 2022, Microsoft announced that its Azure division would experience weaker than expected growth for this quarter.

The same day, Alphabet also announced a drop in growth for the Google Cloud Platform. It grew by 44% in the third quarter of 2022 against 37% in the same period last year.

On his side, Amazon should announce an increase of 33% for AWS when the results were announced on October 27, 2022. This would also represent a decrease from the 39% growth recorded in the same quarter last year.

Why is the cloud dissipating?

According to Piper Sandler analyst Bren Bracelin, ” we notice budgetary pressure on companies “. So what is the cause? According to this expert, we certainly wouldn’t say that enterprise software and the cloud are immune to macroeconomics and we start to see cracks “.

Furthermore, remember that the cloud has experienced explosive growth during the pandemic. The generalization of telework and the increase in digital consumption linked to confinements have caused its rise.

This slowdown indicates that companies in different sectors are beginning to reduce their budgets and are looking to save money in this period of record inflation. In the face of rising interest rates and the threat of a recession, the hour seems to fear. The tech giants are the direct victims.

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The end of the celebrations for GAFAM

Cloud services free companies from having to buy their own software or manage their servers, by allowing them use computer resources suppliers via the web.

the economic model adopted by Amazon, Google and Microsoft also saves money. Customers pay only for resources used through cloud services.

Of the many cloud providers, Amazon and Microsoft are the two main leaders. In the second quarter of 2022, Amazon held 34% of the global market and Microsoft 21%. For its part, Google monopolizes 10% of the market.

However, even this small percentage is enough to make the Californian giant happy. Because, cloud margins are incredibly high. Microsoft reports 73% margins in its cloud segment in the second quarter, and AWS 29%.

These astronomical numbers convinced investors to bet on Amazon and Microsoft, before and during the pandemic. Unfortunately, it seems the promise of continued growth is fading.

According to RBC Capital Markets analyst Rishi Jaluria, “ this is very clearly a macro uncertainty. No one will be immune to this, not even a 360 kilo gorilla like Microsoft “.

The party is over, and investors have already started to panic. Microsoft shares fell 6% on October 26, Amazon shares fell 3.8% and Alphabet shares fell 7.8%. However, Google’s parent company is also impacted by weak YouTube ad sales.

Towards a comeback?

Even if revenues decline, the cloud market could come back strong. When the economy will recoverGAFAM’s cloud divisions could return to the same growth levels as before the crisis.

In particular, Microsoft could quickly get back on the growth path. According to Rishi Jaluria, ” Microsoft has the ability to consolidate budgets. Many companies use 100 different software vendors or even 1000 different SaaS applications “.

In convincing companies that it can offer the same applications via the cloud at a lower cost, Microsoft could incentivize them to adopt Azure services.

For now, however, impossible to predict when the wind will turn. No one knows when the economic crisis will end, and cloud winter looks set to last

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