AWS continues to show strength, but there are a few things to watch out for

Traders had been proud of the newest report from Amazon (NASDAQ:AMZN), as the corporate’s Amazon Net Companies and several other different segments confirmed wholesome progress that prompted reward from business analysts.

And whereas AWS continues to develop at a wholesome 33% year-over-year clip, some Wall Road analysts say there are some things traders have to be careful for from the tech big’s cloud platform.

Wolfe Analysis analyst Deepak Mathivanan, who has an outperform ranking on Amazon (AMZN), wrote that within the firm’s second quarter, AWS margins fell 6% sequentially, largely as a result of a rise in inventory primarily based compensation and better utility prices.

Mathivanan additionally identified that progress slowed from the first-quarter, at 33% in comparison with 37%.

JMP Securities analyst Nicholas Jones, who has a market outperform ranking on Amazon (AMZN), mentioned that AWS, which competes with Microsoft’s (NASDAQ:MSFT) Azure, Google’s (NASDAQ:GOOG) (GOOGL) Cloud Platform and different choices from Oracle (NYSE:ORCL), amongst others, had decrease working revenue at $5.7B, in comparison with estimates of $6B.

AWS’s quarterly income of $19.7B must be seen favorably in gentle of softer cloud progress from Microsoft (MSFT) and Google (GOOG) (GOOGL), however working bills are price nothing, Jones added.

Jones additionally mentioned that Amazon’s (AMZN) AWS backlog elevated 65% year-over-year and 13% sequentially, as Amazon (AMZN) added a number of new purchasers within the quarter, together with Delta Air Strains, Riot Video games, Jefferies & Geisenger.

Nonetheless, there are some issues {that a} international financial slowdown may hit AWS, even when demand continues to be robust presently, as evidenced by its backlog and elevated investments.

Mizuho analyst James Lee famous that enterprise chief info officers are “anticipating a shallow recessionary situation” and will reduce cloud spending progress by about 10% in 2023. Lee additionally famous that gross sales cycles are being prolonged and a few cloud distributors are beginning to reduce costs, which may put estimated cloud progress charges in danger.

To be clear, Amazon’s (AMZN) administration has not indicated {that a} slowdown is looming from any macro points, however reasonably there’s the potential profit — as there was in 2008 and 2020 — {that a} “comparatively lower-cost cloud choice” could possibly be of want when in comparison with constructing in-house.

Amazon (AMZN) has completed job of promoting its choices as competing on the high of the cloud providers house, going up in opposition to Microsoft (MSFT), Google (GOOG) (GOOGL) and others.

However like all issues in life, nothing is ideal 100% of the time, not even Amazon’s (AMZN) 800 pound gorilla.