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US big tech may be seeing their cloud businesses pick up steam again as interest in AI rises, and consumers spend more on advertising.
Tech giants in the US may be close to a positive shift in their cloud business after a long decline in the sector that has lasted nearly a year. These tech giants could see some respite as clients seek to increase their tech expenses following signs of a resilient economy.
The expected improvement in their cloud businesses draws strength from many factors, especially increased interest in artificial intelligence (AI). The market is currently expecting earnings reports from four of the biggest tech companies, including Amazon (NASDAQ: AMZN), Meta Platforms Inc (NASDAQ: META), Microsoft (NASDAQ: MSFT), and Alphabet (NASDAQ: GOOGL), by next week at the very latest. Results posted by these companies, with a combined valuation of more than $6 trillion, may set the tone for general sentiments regarding tech business, especially with cloud and AI.
All four tech giants have ventured deeply into AI products and research as companies worldwide scramble to take the largest chunk of the current AI boom. Their expected results will provide a clearer picture of the general market and potential revenue. Canaccord Genuity analyst Kingsley Crane said:
“We’re really only looking for metrics that point to ramping user traction for AI-based offerings, with the idea being that they will generate more meaningful revenue in the medium-term.”
Analysts polled by Refinitiv predict that Alphabet and Amazon’s cloud computing businesses will grow 24.4% and 9.8%, respectively. This would be the lowest-ever growth percentages for both cloud giants. The analysts also put Microsoft Cloud’s growth at 13.7%, the lowest since 2017.
Tech Giants to Benefit from Cloud Businesses, AI, and Advertising
While these figures don’t seem very encouraging, some analysts have more optimistic opinions. For instance, RBC Capital Markets analyst Rishi Jaluria believes that the companies are resilient enough to weather the storm until things pick up:
“While the macro continues to be soft, it is not getting materially worse and companies are figuring out how to operate in this.”
Jaluria’s optimism might also stem from a recent RBC Capital survey. The survey found that 80% of the 150 enterprise technology buyers that were part of the survey were pumping money into generative AI endeavors. These buyers also expect to spend more on IT expenses this year than 2022.
For advertising, Meta Platforms is likely to see an increase in ad spending. Meta may witness its fastest growth in the last 6 quarters as consumers are gradually becoming more open to spending on digital advertising. The digital advertising channel is Meta’s primary revenue source.
Alphabet is also likely to benefit considerably from a rise in consumer spending on digital ads. According to Bernstein analysts, “if the digital ad space is like riding a roller coaster, we are just about done with the boring/tough part, slowly climbing to the top chain link by chain link.”
For Q2, Alphabet’s revenue growth is likely to come in at 4.5%, its highest over the last three quarters.