Amazon Q4 results: Growing cloud computing is good news for Indian IT companies, according to domestic brokerage Nuvama Institutional Equities, which released better-than-expected Q4 results from Amazon. According to Nuvama, this quarter’s overall growth trajectory has improved for all three hyperscalers—Amazon, Azure, and GCP—as client cost takeout has slowed and demand driven by artificial intelligence has rekindled overall growth.
“Although it’s still early, there are positive indications that discretionary spending is starting to rebound, particularly in the cloud. After a slow CY23, we anticipate a pick-up in cloud spending in 2024, which will boost overall growth in FY25 (over FY24),” the statement read.
With revenue of $169.9 billion, up 13.9% YoY and above the Street’s $166.2 billion estimate, Amazon produced respectable Q4FY23 results. Operating income exceeded the Street estimate of $10.5 billion, growing 382.6 percent YoY to $13.2 billion.
Amazon saw a 13.2% YoY growth in revenue and a 100 bps QoQ increase. AWS increased its annualized revenue run rate to $100 billion in Q4 by more than $1.1 billion. The management is seeing a diminishing effect from cost optimization, which should eventually lead to growth in the cloud business driven by newer initiatives and a re-acceleration of ongoing migrations, according to Nuvama.
According to Nuvama, Amazon predicted net sales in Q1FY24, or the March quarter, of $138–143.50 billion, or an 8–13 percent YoY increase.
“Like other major hyperscale companies, Amazon anticipates a rise in capital expenditures for the fiscal year 2024. This increase is mainly attributed to elevated investments in infrastructure, aimed at sustaining the expansion of its AWS business. Additionally, Amazon plans to allocate further funds towards advancements in generative AI and large language models, according to Nuvama.”
Kotak Institutional Equities stated in its Q3 review that the FY2025 growth rate depends on the Q4 exit rate, the recovery in discretionary spending, and the revenue from new mega deals.
“We anticipate that the Indian IT sector will expand from 4-5 percent in FY2024 to 6-7 percent. For FY2025E, Infosys, TCS, and HCL Technologies have committed to growth of 2-3%. We anticipate that TCS and HCL Tech will outperform the industry thanks to an increase in megadeals. We anticipate Infosys to grow by 6.6%, with a weak exit having an impact. The growth outlook for FY2025 is dependent on a few as-yet-uncertain factors, which we have outlined below,” the statement stated.
This brokerage finds TCS to be intriguing in addition to Infosys, which is its recommended stock pick. Cyient is the domestic brokerage’s choice in the midcap market.
According to Kotak, some IT companies have identified some encouraging signs, particularly in the financial services sector. However, many IT companies maintain that discretionary spending has not improved on a broader scale.
“Cost-reduction priorities are the primary focus of enterprises (clients of IT services companies) across most sectors.” According to our analysis, a lot of businesses have set goals for cost savings that extend until 2024. These don’t give hope for a noteworthy rebound in discretionary spending, at least not in 1HCY24. The statement read, “We have emphasized these trends in our note on the CY2024 IT spending outlook.”
