Gone are the days when cloud used to be an “up and up again” story. It’s time to accept that its turning “cyclical” much like the rest of the tech space, said Jim Cramer this morning on CNBC’s “Squawk Box”.
Cloud stocks have done poorly in 2022
That’s an interesting remark considering “cloud computing” is expected to maintain a CAGR of nearly 16% and as a market be worth over $1.0 trillion by 2028. Still, the Mad Money host said:
Cloud is no longer in the early innings. That’s just not the case anymore. And the companies that live and die by the cloud must recognise that the cloud itself is now cyclical.
What he’s suggesting, though, is fairly reflected in how the cloud stocks have performed in 2022. The WisdomTree Cloud Computing ETF has been cut in half this year as the U.S. Federal Reserve tightened its monetary policy.
It’s signalling continued rate hikes in the coming months that’s likely to push the U.S. economy eventually into a recession. So, Cramer’s theory could be up for an ultimate test in 2023.
Even Microsoft is showing early signs of cracks
His remarks succeed Microsoft’s quarterly update that we covered just last night. The multinational had Azure – its cloud computing platform perform weaker than expected in Q3.
Owing to decelerating growth, Cramer says the cloud companies should focus on turning “leaner”.
They have to fire. Not fill positions, not slow hiring, but fire. The glut in this part of the country is in these companies. They have too many engineers and salespeople. They have too much belief that there will be eternal growth. And that’s over.
Next in line to report is Amazon.com Inc. Its earnings report tomorrow will offer more insight on the state of the cloud industry.