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Jefferies said Friday that “some macro clouds are moving in” for Amazon’s (NASDAQ:AMZN) AWS.
The analysts, who have a Buy rating and $165 per share price target on Amazon, told investors that the firm hosted three Amazon Web Services experts, including an IT strategy consultant, a Cloud architect at a consulting VAR, and a start-up founder who previously worked at AWS.
“Our experts unanimously agreed that AWS is the preeminent public cloud vendor with a sizable gap over Azure, its closest competitor. AWS’s lead is largely a result of its first-mover advantage, and our experts see no signs of AWS losing ground. AWS’s 7-year head start means it has more scale, more revenue and profit, allowing it to reinvest billions into AWS each year, more customer references, and more trained developers that are familiar with the platform,” explained the analysts.
They added that AWS is the “easy and safe choice” for large enterprises and start-ups, with IT buyers at large firms having AWS as the default choice. However, they added that “cloud adoption has slowed as macro storm clouds move in.”
“All 3 experts highlighted a slowdown in cloud adoption due to a softening macro. Our IT consultant expert noted IT costs are under scrutiny, and macro pressures may last until 2025. Our VAR expert noted low-hanging fruit is the highest priority, with longer 6-8 mo. projects on hold. He first observed slowing demand 6-8 mos ago, and does not expect demand to pick up until Q2-Q3 ’23 after budgets are clearer. Our start-up founder expert is preserving cash, and using AWS wherever it can instead of more-expensive non-AWS options. He still expects infrastructure needs to double next yr, though is hopeful to find compute efficiencies to offset added costs,” the Jefferies analysts continued.
Despite the macro pressures, Jefferies believes cloud budgets are relatively shielded, as although there is increased cost scrutiny, “cloud projects could fare better than other budget items.”
