Shares of Amazon (NASDAQ: AMZN) were down 5.73% as of 2:43 p.m. ET on Wednesday following a disappointing earnings report from Google parent Alphabet after the market close on Tuesday.
Investors have high hopes that the recent spending push for artificial intelligence (AI) technology can drive strong growth for the cloud computing leaders, including Amazon. While Alphabet's report disappointed, a strong report from Microsoft's cloud business suggests the opportunity is starting to ramp up.
Here's why Wall Street soured on Amazon today
Amazon's cloud services business (Amazon Web Services) has nearly doubled its annual revenue from 2020 through 2022. The business made up 16% of the company's total revenue in the second quarter. But growth has slowed this year as customers tighten spending in an uncertain macro environment. This dynamic is still affecting Google Cloud's growth.
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Alphabet's third-quarter earnings report showed that companies are still reluctant to spend big on cloud services in an uncertain business environment. Google Cloud's year-over-year (YOY) growth decelerated to 22% from 28% in the previous quarter.
However, Microsoft Azure posted strong growth of 29% YOY, which suggests the bull case is still alive for the cloud leaders.
Why Amazon stock is still a buy
Long-term investors shouldn't be concerned about near-term demand trends in cloud spending. Comparing growth rates from one quarter to the next just creates confusion and noise that doesn't matter in the grand scheme of things. Investors should be encouraged because it is still early days for the cloud market, especially as companies are just starting to figure out how to use AI with their data.
As the leader in cloud services, Amazon Web Services has a huge amount of data that customers will want to use with AI applications. That spells a big opportunity for Amazon over the long term.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. John Ballard has positions in Amazon.com. The Motley Fool has positions in and recommends Alphabet, Amazon.com, and Microsoft. The Motley Fool has a disclosure policy.
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