A few years ago, there was no question that Amazon was the dominant cloud provider. Today, doubts are beginning to creep in.
The three largest cloud companies reported results in recent days and the growth picture for Amazon Web Services is, well, cloudy.
Revenue for AWS in the first quarter of 2023 increased 16% from the prior-year period. Just over a year ago, AWS was growing at a 40% clip. This business has become seriously huge, so it's harder to maintain punchy growth rates. Still, that's a major deceleration.
And AWS's main rivals are growing much faster. Microsoft's Azure cloud unit grew sales by 31% year over year in the first quarter, while Google Cloud reported a 28% increase.
During a conference call with analysts on Thursday, Amazon CFO Brian Olsavsky said AWS revenue trends in April were trending down by about 500 basis points. So that suggests a year-over-year growth rate of just 11% for the early part of the second quarter. For comparison, Microsoft expects Azure cloud revenue to grow 27% in the second quarter.
"The slowdown is unwelcome," Bernstein tech analysts wrote in a research note on AWS's results. "At this point, it seems clear that we need to see growth re-accelerate to get investors buying a de-risked story."
AWS is still the largest cloud provider, but if Microsoft continues to outgrow Amazon every quarter, the gap will narrow. There's already been a notable change in market share. In the first quarter of 2020, AWS had 32% of the market, while Microsoft had 18%. Now, Microsoft's share has grown to 23% while AWS still has 32% of the market, according Synergy Research Group.
Looking forward, Microsoft could benefit from more AI workloads in the cloud. Since 2019, Microsoft has invested billions of dollars into OpenAI, the maker of ChatGPT. The companies are teaming up to offer AI tools and services to developers and companies, via the Azure cloud platform.
On a conference call this week with analysts, Microsoft CFO Amy Hood said AI services will add 1 percentage point to Azure's growth rate in the second quarter.
Rishi Jaluria, an analyst at RBC Capital, thinks that could be understated. "While the AI platform shift is early on and monetization still forming, management sounded as bullish as you'd expect on the market opportunity," the analyst wrote in a note to investors. "A clear path to reaccelerating cloud (and overall) is fast forming with AI."
In contrast, Amazon underwhelmed analysts with its comments on AI during its earnings conference call this week.
"Management's commentary around AI on the earnings call didn't inspire a lot of confidence like some of AWS' competitors," Bernstein analysts wrote.
Amazon declined to comment for this story. In the recent past though, a spokesperson for the company highlighted AWS's size and other signs of success.
"AWS already has an $85 billion annualized revenue run rate, is growing at an absolute dollar rate much faster than other providers, and is still in the early stages of its evolution," the spokesperson wrote in a statement that was sent to Insider before the company's recent quarterly results.
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