Cloud Infrastructure Monitor
Setting up to be a crucial quarter for the major cloud infrastructure providers and broader tech as investors focus on the cost/benefits of AI. Over the last decade, AMZN, MSFT, and GOOGL have garnered outsized investor attention, in part due to their size, but equally due to each of their rapidly growing tech infrastructure businesses (AWS, Azure, and GCP, respectively). Based on the capex commentary from all three exiting the December quarter, investors are hoping for early signs of business AI traction, but also bracing for greater clarity around the costs. Amazon poised for greatest acceleration in both AWS growth and capex. Exiting the December quarter with 13% Y/Y growth, AWS has, by far, the lowest bar of the three, buts this is largely due to it being the largest. Interestingly, consensus estimates indicate it will have the greatest acceleration in capex throughout 2024 (~34%), but this is due to capex declining throughout 2023, as it lapped the massive buildout of its logistics business in 2022. Microsoft will garner the most attention given its relationship with OpenAI/ChatGPT and early success in Azure. After hitting trough growth in June last year of ~22%, Azure has bounced back to 30%. IT has also seen a big uptick in capex (+42% in CY22), providing an early indication of AI’s incremental impact on capex intensity. Google represents the “canary in the coal mine” as it fights off early AI miscues. Although GCP’s growth accelerated decently in 4Q (from 23 to 26% Y/Y), its fighting a perception issue as it lags Azure’s growth (~30% Y/Y) despite being materially smaller in size (Azure exited 2023 on a >$70 billion run rate versus GCP at ~$35 billion). This, combined with the big step-up in capex in the December quarter (+45%), has placed heightened scrutiny on GOOGL’s ability to drive incremental growth. It would seem all of this, combined with MSFT’s search commentary from early 2023 and its recently botched launch of Gemini, will place a high hurdle for Google’s results.
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