Big Tech Expects Cloud Computing And Digital Advertising Business To Rise

The cloud business will stretch this year. (photo: dock. Pixabay)

JAKARTA - The United States (Big Tech) tech giant could mark the end of nearly a year of slowing down of their cloud business as signs of economic resilience prompted clients to increase technology spending, while the recovery of digital advertising would also help increase profits.

Microsoft, the owner of Google, Alphabet, Amazon.com, and Meta Platforms - companies worth more than $6 trillion, will report their financial results this week and next week, in what will be a test for their large valuation and the overall market rally they have been pushing for thanks to optimism towards artificial intelligence.

"We are just looking for a metric that shows increased user attraction for AI-based offerings, with the idea that it will generate more meaningful income in the medium term," said Canaccord Genuity analyst Kingsley Crane.

These four companies have aggressively integrated AI into their products in the hope that this will boost the next industrial growth cycle, but these efforts will take time to deliver results.

For Amazon, Microsoft, and Alphabet - the three biggest players in the cloud market - the April-June quarter is expected to mark a period of poor cloud business growth that has long been a source of revenue.

Both Amazon and Alphabet are likely to report all-time low growth for the cloud computing business, at 9.8% and 24.4%, respectively, according to analysts surveyed by Refinitiv. Meanwhile, Microsoft Cloud Intelligent, which is home to Azure, is expected to grow by 13.7%, the lowest growth rate since 2017. However, some analysts believe that this trend will soon change.

"While the macro situation is still weak, it's not getting worse materially, and companies are looking for ways to operate in it," said RBC Capital Markets analyst Rishi Lineia.

The current quarter will also have a comparison with the previous year which was easier as the cloud slowdown began in the September 2022 quarter, added Lineia.

Recent surveys by RBC Capital involving more than 150 company tech buyers show that more than four-fifth of them are funding AI-generated projects and in general they expect IT spending to increase this year compared to 2022.

For Meta Platforms, Facebook owners, revenue is expected to grow at the fastest rate in six quarters thanks to the recovery of the digital advertising market as consumer spending remains strong.

"If the digital advertising market is like riding a rollerdes, we're almost done with the boring/difficult part, slowly climbing to the top of the chain by chain," said Bernstein analyst.

The recovery of the digital advertising market will also help Alphabet, where its Google Search has so far avoided losing its meaningful market share to Microsoft's AI-based Bing.

Alphabet is expected to report revenue growth of 4.5% in the April-June quarter, the best in three quarters.

"Google Search appears to have switched from a market share risk to a monetary risk, but with a seemingly healthy search share, Google may have lower urgency to integrate LLM (large-language model) results into commercial demand," said BofaA analyst Global Research.

Microsoft and Alphabet will report quarterly results on July 25, Meta on July 26, and Amazon on August 3