Last week’s deluge of major tech earnings made clear that demand for cloud services remains strong. But it also made clear that the tech giants behind those services are watching expenditures closely in the current economic climate. Amazon Microsoft and Google parent Alphabet which operate the three largest public cloud services, all reported solid, double-digit growth in revenue from their cloud segments for the June quarter on a year-over-year basis. That, along with other areas of strength in their respective businesses, was good enough to give all three stocks a decent post-earnings bounce. Amazon, Microsoft and Alphabet shares averaged a gain of more than 8% the day after their results were announced. But growth rates for all three cloud segments also decelerated from the March quarter, and narrowly missed Wall Street’s targets in the case of Microsoft and Google. All three companies are also taking concerted actions to moderate their spending, with plans to slow hiring and even make some targeted job cuts. As such, the enormous capital expenditures that go in part toward building data-center networks for cloud services should hardly be considered sacrosanct.

An early sign of that was already apparent in last week’s reports. Combined capital expenditures by Amazon, Microsoft and Google rose only 12% year over year in the June quarter compared with a 30% rise in the March quarter and a 49% jump in last year’s June period. Of course, quarterly capital expenditures by the three have historically been lumpy as the building and equipping of data centers doesn’t follow a straight line. But on a trailing 12-month basis, combined capital expenditures by the three also showed the same trend, rising 25% for the 12-month period ended in June compared with a 52% surge in the same period the year prior.

All three also sounded a relatively cautious tone on spending plans for the periods ahead. Amazon Chief Financial Officer Brian Olsavsky said on the company’s earnings call that Amazon expects to spend “slightly more” on capital investments this year, this following a 32% jump in capital expenditures and equipment acquired under capital leases in 2021. Microsoft CFO Amy Hood projected a sequential decrease in capex during the September quarter and added, “We do feel that we’ve gotten in a good place on capacity on a global basis” to handle the usage customers need in Microsoft’s data centers.             Source: WSJ