Tomorrow Investor

Is Trouble Looming for Cloud Computing ETFs?


While cloud computing has proven itself a most lucrative business over the past several years, the looming specter of economic recession has prompted many companies to start trimming the cost of both operations and deployment. Over the past few months, this led to slower revenue growth for the sector, particularly for cloud teams at the likes of Amazon, Google, and Microsoft.

That said, is it possible that sectoral growth for cloud computing is slowly winding down to a standstill? This may well be the case as cloud computing ETFs posted significant losses at the end of the first quarter of this year.

Understanding the Situation

When fears of a recession first went public in 2022, it led to decelerated growth for Amazon Web Services (AWS) in the third and fourth quarters of the year, as well as a general slowdown for Microsoft last December.

The grim news spilled into Q1-2023 as Amazon finance chief Brian Olsavsky reported that AWS’ growth went down by around five percentage points from its Q1-2022 growth rate of around 16%. Google, on the other hand, saw its cloud growth decelerate to just 28% compared to the 32% posted in Q4-2022; this was despite hitting profitability for the very first time. 

Likewise, Microsoft has not inspired optimism among analysts, given finance chief Amy Hood’s grim prognosis of a continued slowdown in consumption growth.

What Does This Mean for Cloud Computing ETFs?

Decelerated growth poses a challenge for investors looking into cloud computing ETFs. Indeed, many investors now hesitate about putting their money given the ominous growth outlook across the board.

One concrete example of this hesitation can be seen in the way Amazon’s stock price has fallen over the past several weeks – solid proof that investors are shying away from cloud computing given the grim prognosis for its growth.

Despite this, cloud providers remain optimistic that things will soon be looking up for the sector. Amazon chief executive Andy Jassy, for one, opines that there remains a great deal of room for growth for the cloud computing sector, given how 90% of global IT spending remains tied up on-premises.

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