Big tech continued to spend aggressively on building a cloud computing infrastructure during the June quarter, but don't expect that to persist, analysts say.
For 2023, some on Wall Street see a dramatic slowdown in spending by major technology firms on the warehouse-size data centers packed with advanced computing and communications technology that make up the cloud. They say cloud spending growth could slow from the mid-20% range down to mid-single digits.
At Susquehanna Financial, analyst Mehdi Hosseini expects big tech spending on cloud infrastructure to grow 23% in 2022. That's a slight dip from 25% growth last year. For 2023, Hosseini forecasts "flat to up to 5% year-over-year" growth.
"We expect a digestion/slowdown in 2023," he said in a report to clients. "In our view, the 'calm' in the current cloud spend is like the 'calm' before the hurricane hits the beaches."
Big Tech: Cloud Computing Spending Set To Slow?
Wall Street analysts differ in how they view capital spending on cloud computing. The big three providers of cloud services — Amazon.com's Amazon Web Services, Microsoft and Alphabet's Google — are routinely included in forecasts.
Most analysts also include Facebook-parent Meta Platforms. Some include Apple or Alibaba Group and second-tier cloud players such as IBM and Oracle.
At Morgan Stanley, analyst Erik Woodring tracks U.S. spending by the top 10 cloud companies. He excludes Amazon because the tech giant doesn't break out cloud infrastructure spending from warehouse fulfillment and logistics capex.
In 2022, Woodring expects 25% cloud capex growth based on a strong June quarter. But he expects cloud capex growth to fall to 5% in 2023.
"The cloud capex deceleration in 2023 suggests that hyperscalers may be entering a digestion period after three consecutive years of accelerating cloud capex growth," Woodring said in his note to clients.
Spending on cloud infrastructure jumped during the coronavirus pandemic. It came as e-commerce boomed and consumers turned to internet video and online gaming for entertainment.
Chipmakers, Networking Firms In Cloud Supply Chain
Capital spending on cloud infrastructure is a key industry trend for analysts that follow semiconductor companies like chipmakers Nvidia and Intel as well as makers of computer servers, data storage systems and networking gear.
Fiber-optic device makers sell parts for high-speed communications networks. Arista Networks and Cisco Systems sell specialized network switches and routers that make the cloud superfast.
At Raymond James, analyst Simon Leopold said the outlook for big tech 2022 cloud computing spending remains strong.
"Based on quarterly results, 2022 capex spend targets, and commentary, it seems as though supply chain constraints are less impactful to hyperscale expansion plans, and business trends remain solid," he wrote in a note.
Leopold added, " We are not, however, implying public cloud is completely immune, and believe that a more severe macro downturn could result in lower than expected spending, although still likely in the low-mid double digits. Consensus expectations for web scale capex in 2022 aggregates to $179 billion, which represents 19% year-over-year growth."
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
