Welcome to Mostly Cloudy! Today: AWS sends a clear message after weeks of mixed signals on the health of the enterprise market, AMD’s data-center earnings results make Intel’s woes look even worse, and Microsoft’s ongoing quest to reinvent all of its products with the power of AI.
Photo: AWS
Hunker down
Enterprise tech companies have been couching their statements about the health of the IT market over the last several weeks, warning that customers are more carefully watching their budgets right now than they have in past years but remaining confident. During its earnings call Thursday, AWS was a little more blunt.
After reporting that AWS revenue grew 28% to just over $80 billion in 2022 and grew 20% during the fourth quarter, Amazon CFO Brian Olsavsky warned financial analysts that AWS expects first-quarter revenue to grow “in the mid-teens,” which given AWS’s position in the market offers the best real-world picture to date of what tech buyers are thinking in early 2023.
“This is a bit of uncharted territory economically,” Olsavsky said, according to Techcrunch. “And as we mentioned, there’s some unique things going on with the customer base that I think many in this industry are all seeing the same thing.”
Earlier this month Gartner suggested that IT spending was “recession proof,” and if you compare how AWS, Microsoft, and Google Cloud expect to fare over the next few months compared to their advertising industry colleagues, that’s probably true. Still, this is a new experience for the legions of cloud buyers and sellers who haven’t lived through a weak market in a long time, if ever.
“By and large, what we're seeing is just an interest and a priority by our customers to get their spend down as they enter an economic downturn,” Olsavsky said during the question-and-answer portion of the earnings call, as transcribed by Seeking Alpha. We're doing the same thing at Amazon, questioning our infrastructure expenses as well as everything else.”
Both Olsavsky and Andy Jassy, making his first appearance on an earnings call since getting kicked upstairs from the AWS CEO job, tried to reassure analysts that the long-term picture is still rosy, a job for which they are compensated handsomely. But they declined to provide a forecast beyond the current quarter, which suggests that things could get worse before they get better.
People have been predicting the end of the high-growth cloud computing era since, well, the beginning of the high-growth cloud computing era, but 2023 might be the year that finally sets in, with no end to war in Europe in sight and layoffs cascading through Silicon Valley. And there will be lots to consider on the other side of this downturn.
If cloud infrastructure growth finally settles into the single digits, will market share competition between the Big Three become even more intense? After paring down their infrastructure spending, will cloud customers discover that they can get by with way less than they might have thought? Will customers balk at long-term deals championed by Jassy that lock in certain amounts of spending for price discounts, given the uncertainty?
Of course, if the generative AI craze really takes off, cloud providers will make it all back renting GPUs to CIOs frantically trying to drum up an AI strategy to please the board.
A Major Deal
Over the course of the 21st century, there have only been a handful of times when AMD held the upper hand over Intel and the smaller company’s capacity for self-destruction usually kept those periods short. This is not one of those times.
While Intel suffered through a disastrous fourth quarter, AMD held its own. Both companies were exposed to a cratering PC market, but revenue from AMD’s data-center operation grew 42% during the fourth quarter, compared to the 33% drop in revenue posted by Intel during the same period of time. Just a few years ago Intel commanded more than 90% of this market, and according to Mercury Research that figure is now down to around 70%.
As of the close of trading Friday, Wall Street valued AMD significantly more than Intel, which is an amazing turn of events. The PC market will always be a little finicky, but AMD is making gains with customers that value consistency and long-term thinking, two things Intel can’t promise right now.
Around the enterprise
Microsoft officially launched a premium version of Teams that prominently features OpenAI’s technology, in hopes of getting customers to cough up even more money for automatically generated meeting notes.
Netlify acquired Gatsby, consolidating the emerging Jamstack market that hopes to capitalize on the growth of edge computing.
Meta offered a peek behind the curtain at the data-center infrastructure it uses to run games, which emphasizes reducing latency above all else.
Google invested $300 million in Anthrophic, a startup formed by former OpenAI employees who were “concerned that Microsoft’s first investment in OpenAI would set it on a more commercial path and detract from its original focus on the safety of advanced AI,” according to the Financial Times.
Thanks for reading — see you next week!