Amazon Q4 results: Growth in cloud bodes well for Indian IT firms, says Nuvama

As Amazon reported better-than-expected Q4 results, domestic brokerage Nuvama Institutional Equities said growth in cloud bodes well for Indian IT firms. Nuvama said results of all three hyperscalers namely Amazon, Azure and GCP have shown an improvement in the overall growth trajectory in this quarter, as cost takeout measure of clients has slowed down and AI-led demand revived overall growth.

"While still early days, these are encouraging signs of a revival in discretionary spends especially on Cloud. We expect a pickup in cloud spending in 2024, after a modest CY23 – leading to higher overall growth in FY25 (over FY24)," it said.

Amazon delivered decent Q4FY23 results with revenue at $169.9 billion, up 13.9 per cent YoY, higher than the Street’s $166.2 billion estimate. Operating income grew 382.6 per cent YoY to $13.2 billion, coming in higher than the Street estimate of $10.5 billion.

"Amazon’s revenue grew 13.2 per cent YoY, up 100 bps QoQ. AWS added more than $1.1 billion in incremental revenue in Q4 to an annualised revenue run rate of $100 billion. Management continues to see diminishing impact of cost optimisation – which should eventually translate into growth in the cloud business – in turn, led by newer initiatives and re-accelerating existing migrations," Nuvama said.

Nuvama said Amazon guided for net sales of $138–143.50 billion in Q1FY24, which is March quarter, implying an 8–13 per cent YoY uptick.

"Similar to other hyperscalers, Amazon expects its capex to increase in FY24, primarily driven by increased infrastructure spends, to support growth of its AWS business, including additional investments in generative AI and large language models," Nuvama said.

In its Q3 review, Kotak Institutional Equities said FY2025 growth rate is a function of Q4 exit rate, recovery in discretionary spending and revenue from new mega deals.

"We expect the Indian IT industry to grow at 6-7 per cent from 4-5 per cent in FY2024 per cent. Infosys, TCS and HCL Technologies have locked in 2-3 per cent growth in FY2025E. We expect TCS and HCL Tech to grow above the industry level, aided by a ramp-up of mega deals. We expect 6.6% growth in Infosys, with an impact due to a weak exit. The FY2025 growth outlook depends on a few factors that are unclear yet, which we have detailed subsequently," it said.

This brokerage has Infosys as its preferred stock pick; it finds TCS interesting as well. The domestic brokerage has Cyient as its pick in the midcap space.

Kotak said a few IT companies did highlight a few green shoots, especially in financial services, though at a broader level, discretionary spending has not improved, according to many IT companies.

“Overwhelming focus of enterprises (clients of IT services companies) across most sectors are focused on cost-reduction priorities. Our analysis indicates that many enterprises have outlined cost-savings targets that stretch into 2024. These do not inspire confidence of a significant recovery in discretionary spending at least in 1HCY24. We have highlighted these trends in our note on the CY2024 IT spending outlook,” it said.

Also read: Tata Motors Q3 results: Net profit rises 137% to Rs 7,025 cr, revenue up 25%

Also read: BLS E-Services IPO allotment status: Check application, latest GMP and listing date