Cloud Software Stocks – Led by Snowflake (To snow Data hound (DDOG) – rose Friday after strong earnings results this week from cloud computing’s big three: Amazon (AMZN) Microsoft (MSFT) and Alphabet (GOOGL).
Snowflake stock rose more than 9% to close at 218.76 on the stock market today.
Datadog shares rose 6% to 134.31. Other cloud data focused companies such as Elastic (ESTC), Confluent (CFLT) and MongoDB (MDB) gained more than 5% each on Friday.
End of cloud optimization?
The three major cloud providers each said this week that spending trends are improving. The pace of cloud revenue growth slowed for much of the industry in late 2022 and into 2023. That’s partly because companies focused on “optimizing” cloud spending, as it became known across the industry.
But trends appeared to improve in the second half of the year. The cloud giants’ December quarter results point to further momentum.
“We continue to see diminishing impact from cost optimizations,” Amazon Chief Financial Officer Brian Olsavsky told analysts on Thursday. “And as these optimizations slow down, we’re seeing more companies turning their attention to newer initiatives and reaccelerating existing migrations.”
Amazon Web Services is the world’s largest provider of cloud computing infrastructure. The division posted a 13% year-on-year revenue increase to $24.2 billion. That represented a slight acceleration compared to the annual growth of 12% in the third quarter. AWS’s growth rate had been slowing for several quarters.
Microsoft said Tuesday that its Azure cloud business grew 30% year over year in the December quarter, exceeding high expectations. The tech giant said it was getting a boost from customers using its servers and software to build generative artificial intelligence tools.
“That period of massive, I call it ‘just optimization and no new workloads,’ I think is over at this point,” Microsoft CEO Satya Nadella said during the company’s earnings call.
And Google CEO Sundar Pichai told analysts on Tuesday that cost optimizations are “something we’ve largely been working on.” Google said cloud computing revenue rose 25% to $9.19 billion in the December quarter, beating estimates of $8.94 billion.
Read through for Snowflake Stock, Enterprise Software
This week’s Big Tech results bode well for smaller players in the sector, Wall Street analysts said.
“Azure once again stood out for its strong AI contribution, but positive commentary from both AWS and (Google Cloud Platform) should be seen as encouraging for the broader ecosystem in our view,” Barclays analyst Raimo Lenschow wrote in a client note on Friday.
Cloud software companies typically design their products to run on all three cloud platforms. They also offer their products on cloud provider marketplaces.
“We believe the environment for other cloud consumer companies, such as Snowflake, continues to stabilize and that generative AI may accelerate the shift of data and workloads to the cloud as more attractive Gen AI services emerge for the enterprise,” said Evercore ISI analyst Kirk. Materne wrote a letter to customers on Friday.
Consumption refers to companies that charge based on the use of their software.
The commentary for the major cloud providers indicates “that cloud enterprise spending has actually turned the corner,” wrote Stifel analyst Brad Reback.
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