The performance of Amazon’s (AMZN) cloud business, AWS, will be keenly examined when its earnings report lands later, after Microsoft (MSFT) stock plunged last week, in part due to a slowdown in cloud growth.
Bloomberg reports:
This was not an issue for Amazon’s October earnings, as its shares jumped almost 10% following better than expected revenue from Amazon Web Services, also known as AWS. Now, however, fear is rippling through the tech sector, and Amazon investors are increasingly concerned that the slowdown at Microsoft’s Azure indicates broader weakness for cloud providers.
“It isn’t clear how much of Microsoft’s disappointment might be due to company-specific issues and how much might reflect an overall slowing in the cloud space,” said David Miller, chief investment officer at Catalyst Funds, which holds Amazon shares in several portfolios. “If it’s the latter, that could carry over.”
… Amazon’s results come against a backdrop of anti-software sentiment that’s weighing on the entire tech sector as investors try to sort the winners and losers from the hundreds of billions of dollars being spent to develop artificial intelligence.
Microsoft’s aggressive AI-related capital expenditures, alongside the slowing Azure growth, invited new questions about when these investments will pay off more substantially.
“It’s really about what’s already priced into the stock, and I think what was starting to price in for [Microsoft] was a higher growth rate, which is always a little dangerous,” said Melissa Otto, head of technology, media and telecommunications research at Visible Alpha. “We haven’t really seen Amazon moving up in the same way.”