U.S. chipmakers are concerned about a likely slowdown in data center growth

The business's strongest section, cloud computing and data centers, may become its next obstacle. As consumers joined up for cloud-based entertainment and businesses remodeled their workplaces, there are signs that the growth of a COVID-era industry pillar may slow.

It is impossible to predict if the cloud industry is recession-proof or will be harmed by a recession, according to analysts, because the cloud industry has rarely seen a prolonged economic downturn since its rise in popularity over the past decade.

Large technology corporations report that advertisers have reduced their budgets in light of the highest inflation rate in 40 years and the discussion over the advent of a recession.

"Investors are worried that the other shoe is ready to drop," said Bernstein analyst Stacy Rasgon, adding that a lack of advertising revenue hurting companies such as Facebook (NASDAQ:META) and Snapchat might lead to expenditure cuts in data centers.

In comparison to the previous quarter, Alphabet (NASDAQ:GOOGL) Inc's Google Cloud revenue growth slowed by over 8 percentage points, Microsoft Corp's (NASDAQ:MSFTAzure) revenue growth slowed by over 6 percentage points, and Amazon.com's (NASDAQ:AMZNAWS) revenue growth slowed by over 3 percentage points.

Nathaniel Harmon, director of research at YipitData, claimed that despite the emergence of pockets of weakness in regions such as Europe, the cloud market's revenue growth remained strong.

In an effort to save money during the epidemic, the three companies have announced that they will keep data center equipment for up to six years, as opposed to three.

Glenn O'Donnell, the head of research at Forrester, stated, "If they reduce expenditure on data center capacity, Intel and AMD will produce fewer chips" (NASDAQ:FORR).

In its most recent quarterly earnings release, Intel Corporation's (NASDAQ:INTC) data center and AI group revenue slid 16% to $4.6 billion, roughly $2 billion below Wall Street's expectations.

And just last week, Micron Technology Inc. (NASDAQ:MU) gave a considerably worse-than-expected projection, stating that PCs, smartphones, and the cloud were all facing problems.

The chief business officer of Micron, Sumit Sadana, told Reuters that the issue is not as simple as a halt in the growth of the cloud sector. A shortage of certain chips impeded the manufacture of servers, resulting in an abundance of other chips - a situation analogous to the auto chip crisis.

According to the chief marketing officer of Supplyframe, Richard Barnett, server supply chain inventory levels are at an all-time high, but critical components are missing. "Assume a server requires 500 components, but 10 or 20 are unavailable, hindering its completion."

However, Sadana noted that corporations were purchasing chips with increased constraint out of concern for the economy.

According to Forrester's O'Donnell, this issue is pervasive across the IT business. "When we ask our clients about their spending plans, many of them tell us, 'We're not going to turn off the tap, but we will close it a bit,'" he stated. This will also be reflected in the earnings of companies like Hewlett Packard Enterprise (NYSE:HPE) and Dell.

While executives and analysts debate the impact of the cloud market's slowing growth, Super Micro Computer (NASDAQ: SMCI), a business specializing in customized servers for developing technologies, noted that innovations such as self-driving vehicles and the metaverse continue to drive new demand.

Michael McNerney, vice president of marketing and network security at Super Micro, observed, "As projects migrate from the lab to deployment, there is a huge deal of pent-up growth."