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Cloud computing has been a booming market in recent years as more and more businesses move their workloads to the cloud. However, with economic uncertainty on the horizon, companies are looking for ways to trim costs. This has led to slower revenue growth for cloud divisions at major companies such as Amazon, Microsoft, and Google. As a result, cloud computing segment may be facing a tough time ahead as cloud providers are feeling the pinch, as quoted on a CNBC article.
Cloud computing ETFs including Fidelity Cloud Computing ETF (FCLD - Free Report) , WisdomTree Cloud Computing Fund (WCLD - Free Report) and Direxion Daily Cloud Computing Bull 2X Shares (CLDL - Free Report) lost about 1.7%, 5.4% and 5.6%, respectively, last week (as of May 1, 2023).
Decelerating Growth in Cloud Computing
In 2022, fears of a recession began to hit the economy, causing a deceleration in the third and fourth quarters for Amazon Web Services (AWS) and a slowdown in December for Microsoft. Last quarter, Microsoft finance chief Amy Hood spooked analysts with comments about the expected continuation of this slowdown.
Amazon finance chief Brian Olsavsky recently reported that in April, AWS revenue growth had slumped by about five percentage points from the first-quarter growth rate of almost 16%. Similarly, at Google, cloud growth slowed to 28% from a year earlier in the first quarter from 32% in the prior period, despite reaching profitability for the first time on record. Ruth Porat, Alphabet’s finance chief, noted that slower consumption growth was due to customers looking to optimize their costs.
The Impact on Cloud Computing ETFs
As a result of this deceleration in growth, cloud computing ETFs could be facing a challenging time. Investors may be hesitant to invest in these ETFs as the growth outlook for the industry appears to be slowing down. The recent slide in Amazon’s stock price is an indication that investors are not confident in the future growth prospects of cloud computing.
Any Ray of Hope?
Despite the current challenges facing cloud providers, they remain optimistic about the long-term prospects of the industry. According to Amazon CEO Andy Jassy, only 90% of global IT spend is still on-premises, indicating that there is still a lot of room for growth in the cloud computing industry. Microsoft’s Amy Hood also noted that the financial comparisons will soon be against numbers from the point last year when the market was softening, which could lead to a more positive outlook.
In the first quarter of 2023, although there was a lower year-on-year growth rate of 20% compared to the previous year, there were some encouraging developments such as the global revenue figure of $63 billion, which was an increase of over $10 billion from Q1 2022.
Bottom Line
Cloud computing ETFs may face a challenging time in the near future as cloud providers experience a deceleration in growth due to businesses looking to trim costs. However, with optimism for the future growth prospects of the industry, investors should remain cautious but not dismissive. The cloud computing market still has significant potential for growth, and a long-term view may be necessary for investors looking to benefit from the sector.
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Tough Time Ahead for Cloud Computing ETFs?
Cloud computing has been a booming market in recent years as more and more businesses move their workloads to the cloud. However, with economic uncertainty on the horizon, companies are looking for ways to trim costs. This has led to slower revenue growth for cloud divisions at major companies such as Amazon, Microsoft, and Google. As a result, cloud computing segment may be facing a tough time ahead as cloud providers are feeling the pinch, as quoted on a CNBC article.
Cloud computing ETFs including Fidelity Cloud Computing ETF (FCLD - Free Report) , WisdomTree Cloud Computing Fund (WCLD - Free Report) and Direxion Daily Cloud Computing Bull 2X Shares (CLDL - Free Report) lost about 1.7%, 5.4% and 5.6%, respectively, last week (as of May 1, 2023).
Decelerating Growth in Cloud Computing
In 2022, fears of a recession began to hit the economy, causing a deceleration in the third and fourth quarters for Amazon Web Services (AWS) and a slowdown in December for Microsoft. Last quarter, Microsoft finance chief Amy Hood spooked analysts with comments about the expected continuation of this slowdown.
Amazon finance chief Brian Olsavsky recently reported that in April, AWS revenue growth had slumped by about five percentage points from the first-quarter growth rate of almost 16%. Similarly, at Google, cloud growth slowed to 28% from a year earlier in the first quarter from 32% in the prior period, despite reaching profitability for the first time on record. Ruth Porat, Alphabet’s finance chief, noted that slower consumption growth was due to customers looking to optimize their costs.
The Impact on Cloud Computing ETFs
As a result of this deceleration in growth, cloud computing ETFs could be facing a challenging time. Investors may be hesitant to invest in these ETFs as the growth outlook for the industry appears to be slowing down. The recent slide in Amazon’s stock price is an indication that investors are not confident in the future growth prospects of cloud computing.
Any Ray of Hope?
Despite the current challenges facing cloud providers, they remain optimistic about the long-term prospects of the industry. According to Amazon CEO Andy Jassy, only 90% of global IT spend is still on-premises, indicating that there is still a lot of room for growth in the cloud computing industry. Microsoft’s Amy Hood also noted that the financial comparisons will soon be against numbers from the point last year when the market was softening, which could lead to a more positive outlook.
In the first quarter of 2023, although there was a lower year-on-year growth rate of 20% compared to the previous year, there were some encouraging developments such as the global revenue figure of $63 billion, which was an increase of over $10 billion from Q1 2022.
Bottom Line
Cloud computing ETFs may face a challenging time in the near future as cloud providers experience a deceleration in growth due to businesses looking to trim costs. However, with optimism for the future growth prospects of the industry, investors should remain cautious but not dismissive. The cloud computing market still has significant potential for growth, and a long-term view may be necessary for investors looking to benefit from the sector.