In a note to clients earlier this week, Deutsche Bank trimmed its price target for Amazon from $1,150 down to $1,135, on fears that the company's $12 billion Amazon Web Services cloud-computing business faces challenges ahead.
Amazon Web Services pioneered what the tech industry calls "public cloud": Customers rent functionally unlimited supercomputing power from Amazon's own super-efficient data centers on a pay-as-you-go basis. It's sometimes cheaper, and often more flexible, than maintaining servers of your own.
Generally speaking, Deutsche Bank remains bullish on the future prospects for AWS. Companies of all shapes and sizes are either starting their businesses on Amazon Web Services, or moving some (or all) of their existing infrastructure up to Amazon's cloud.
The problem, writes Deutsche, is that their conversations with Amazon's network of partners and specialists indicates that migration of existing businesses to the cloud is happening at a slower rate than originally anticipated. When Amazon reports earnings on July 27, it's expecting AWS to show 39% growth, versus its original projection of 40%.
The reason for Deutsche's skepticism comes from a visit to an AWS Summit conference in London, where analysts heard its "first-ever downtick from partners around the pace of large European enterprise cloud migrations." When Deutsche checked with its contacts in the United States, it heard the same was happening domestically.
Deutsche wants to be clear that it's still projecting a bright sunny future for the public cloud in general, and AWS in particular. Still, with Amazon Web Services such a cornerstone of the bigger Amazon picture, this little blip could lead to bigger problems down the road, should the trend continue.
Amazon is expected to announce quarterly earnings on Thursday, July 27 after the bell. Wall Street is expecting earnings of $1.42 per share on $37.18 billion in revenue.
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