Amazon, Alphabet come down off cloud high

Two tech giants had opposite projections for their cloud infrastructure futures this week, with Amazon showing sluggish growth and Alphabet boasting “great momentum in Cloud.”

Amazon reported its first unprofitable year in nearly a decade amid sluggish growth for Amazon Web Services (AWS), a once-booming area for the retail giant. Alphabet, the parent company for Google, meanwhile boasted taking in just under $60 billion in profits in 2022.

Both companies saw major profit increases in 2021 that shrank in 2022, according to earnings reports out this week. However, their outlooks are diverging.

AWS goes cloudy

Amazon’s central identity, selling goods in North America, lost money for the fifth straight quarter, and the company saw shares fall despite recently announced staffing cuts and other efforts to limit expenses.

Referring to the cloud market specifically, Chief Financial Officer Brian Olsavsky said, “We expect to see slower growth rates the next few quarters,” on a call with reporters.

Net sales for AWS were up 20% year over year to $21.3 billion but operating income for the segment of Amazon was down 2% year over year at the end of 2022, according to Amazon executives.

AWS, which saw significant growth and helped keep the company profitable in 2020 and 2021, saw a gradual drop in operating income through 2022, according to the most recent earnings report.

Operating income for AWS hit over $6 billion in the first quarter of 2022 but dropped to $5.2 billion by the fourth quarter, according to the report. The biggest loss-maker for Amazon last year was its investment in Rivian, the electric car company, according to the earnings report.

Alphabet soup

Alphabet overall reported a 1% revenue gain in the fourth quarter of 2022 compared to the same quarter of 2021, according to its earnings report. Advertising revenues are down by over $2 billion. The company reported a nearly 50% annual revenue gain in 2021 compared to 2020.

Executives for Alphabet say the company is situated well for the coming year. “Our long-term investments in deep computer science make us extremely well-positioned as AI reaches an inflection point, and I’m excited by the AI-driven leaps we’re about to unveil in Search and beyond,” Sundar Pichai, CEO of Alphabet and Google, said. “There’s also great momentum in Cloud, YouTube subscriptions, and our Pixel devices.”

Google Cloud revenues reached $7.3 billion in the last quarter of 2022, up from $5.5 billion in the last quarter of 2021. Cloud was operating at a loss for the company in that quarter, $480 million loss compared to $890 million loss in last quarter of 2021.

Alphabet also recently announced layoffs alongside Microsoft. Silverlinings reached out to all three companies to ask if the job cuts hit their cloud divisions, but they declined comment then.