Not the Best Results from Cloud Giants (AWS, Azure, GCP)

Cloud Giants earnings (AWS, Azure, and Google Cloud) haven’t delivered the best news for software this week.

Three months ago, the Cloud Giants hinted that the era of optimizations was winding down, and new workloads were on the rise.

However, after their recent reports, the mood has shifted. The focus this quarter was more on “optimizations are continuing,” which contrasts with the more upbeat tone from three months ago.

So, what does this mean for the software industry?

The software market has remained robust despite the 10-year Treasury yield climbing to 5%. This resilience could be attributed to the expectation of reacceleration in numbers and forecasts.

Alternatively, some may be banking on a return to a 3.5% 10-year yield, although that seems unlikely. Software valuations currently stand at levels similar to those in May when the 10-year yield was at 3.4%.

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Yet, the recent Cloud Giants’ reports raise questions about when this anticipated reacceleration will happen. The narrative this quarter has been more about continued optimizations. This shift in tone suggests that reacceleration might not be as imminent as anticipated.

AWS seemed the most optimistic regarding optimization trends, while Azure and Google Cloud indicated that optimizations persisted.

Here’s a snapshot of AWS, Azure, and Google Cloud:

  • AWS (Amazon): A $92 billion run rate with 12% YoY growth.
  • Azure (Microsoft): Estimated to have a run rate of around $66 billion with 28% YoY growth.
  • Google Cloud (including GSuite): Boasts a $34 billion run rate with 22% YoY growth.
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This week’s cloud giant updates offer a glimpse of what to expect in the broader software sector’s Q3 earnings. Azure and Google Cloud gave investors some jitters.

While Azure exhibited robust growth (28% YoY in constant currency, up from 27% in the previous quarter), their comments on optimization pressure remained consistent. Azure expects its revenue growth to remain stable for H2, citing optimization trends and a growing contribution from AI.

Google Cloud also faced a substantial deceleration, falling from 28% growth in the previous quarter to 22% this quarter. This slowdown may be partly due to a challenging year-over-year comparison. Google Cloud, like Azure, acknowledged that optimizations persisted.

On the other hand, AWS appeared more optimistic about optimization trends. Their message was similar to the previous quarter, emphasizing that optimizations are slowing down while new workloads are on the rise.

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These results provide a glimpse of what to expect from the software industry. The upcoming Q3 earnings season will reveal whether these cloud giants’ performances are indicative of broader trends in the software sector.

Pavlos Written by:

Hey β€” It’s Pavlos. Just another human sharing my thoughts on all things money. Nothing more, nothing less.