Slowdown In Big Tech Cloud Spending

A second problem that is now affecting the technology industry is a slowdown in cloud computing.

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Several major U.S. cloud computing companies reported a substantial slowdown in revenue growth rates last week. These companies include Microsoft Azure, Amazon Web Services, and Google Cloud. It is not only a problem for them, but also for the companies that manufacture the chips and other equipment supporting these cloud services as well.

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According to the fourth quarter results from Microsoft MSFT -1.74% (ticker: MSFT) Azure (under its Windows Azure product line), the year-over-year growth rate declined to 31% from 35%, while Amazon.com AMZN -5.89% (under its Amazon Web Services brand) subsided to 20% from 28%, while Google Google+ declined to 4% from 6%. According to Alphabet’s Google Cloud, Alphabet's recent quarter sales of the company's products grew by 32%, down from 38% in the previous quarter.

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There isn't much improvement in the recent commentary on business trends either. According to Microsoft's call with investors, the company has had a softer business through December, and Amazon confirmed on Thursday that its AWS growth in January was down to mid-teens as well.

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A slowing economy was supposed to make cloud spending more resilient during this time. Changing the technology systems from legacy on-premises to cloud-based systems, according to the argument, would allow companies to benefit from greater flexibility, reliability, and efficiency. In spite of the fact that the economic uncertainty over the coming years seems to be forcing companies to reduce their technology budgets as well as their growth initiatives for the cloud area, it seems the situation has become more dire.

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Following an assessment of the earnings results on Friday, Sterling Auty, an analyst at MoffettNathanson, wrote a note to clients stating that "cloud computing growth is slowing and will likely continue to slow through the March quarter."

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Those who are tightening their belts aren't just cloud computing customers. Facebook and Instagram parent company Meta Platforms (META) announced on Wednesday that it was reducing its capital expenditures budget to $30 billion to $33 billion from a previous forecast of $34 billion to $37 billion for 2023. It said the lower outlook was due to the need to build its data centers more efficiently.

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There has been a decline in the size of the server market for the four major U.S. tech companies Microsoft, Google, Amazon Web Services, and Meta for the year 2023, owing to economic headwinds. TrendForce, which identifies major technology companies, lowered its growth forecast for server buying from 6.9% to 4.4% this week due to economic headwinds.

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It has been reported that a slowdown in these two areas could have a negative effect on a number of technology companies that make computer chip products including Intel, Advanced Micro Devices, Micron Technology, and Nvidia. Because of this, a slowdown in cloud and data center demand would have a negative impact on these companies.