Economic Strengthening May Lead to end of Cloud Business Slump

As signs of economic resilience encourage clients to increase technology spending, U.S. tech behemoths may signal the end of a nearly year-long slowdown in their cloud businesses, while an increase in digital advertising will also help profits.

Microsoft, Alphabet, Amazon.com, and Meta Platforms companies with combined valuations of more than $6 trillion  are set to report earnings this week and next, putting their hefty valuations and the broader market rally they have driven thanks to optimism about artificial intelligence to the test.

"We're really only looking for metrics that point to increasing user traction for AI-based offerings, with the hope that they'll generate more meaningful revenue in the medium term," said Canaccord Genuity analyst Kingsley Crane.

The four companies aggressively integrated AI into their products this year in the hopes of driving the industry's next growth cycle, but those efforts will take time to pay off.

The April-June quarter is expected to be another period of dismal growth in the business that has long been a cash cow for Amazon, Microsoft, and Alphabet, the three largest players in the cloud market.

According to Refinitiv polled analysts, both Amazon and Alphabet will likely report their lowest-ever growth in the cloud computing business, at 9.8 percent and 24.4 percent, respectively. Meanwhile, Microsoft Intelligent Cloud, which houses Azure, is expected to grow at the slowest rate since 2017.

Several analysts, however, believe the trend is about to reverse.