What happened
To paraphrase an old saw, in certain industries if a top stock sneezes, its peers catch colds. That certainly seemed to be the case with cloud computing on Friday. Following the comparatively disappointing performance of the big name in the sector, investors energetically traded out of numerous contemporaries.
Atlassian (TEAM +1.26%) and Datadog (DDOG +2.79%) both suffered 4% falls on the day, while Zscaler (ZS +1.30%) declined 3.6%. MongoDB (MDB +2.48%) felt less pain, slipping by only 0.4%.
So what
The pied piper in this case is mighty Amazon (AMZN 2.62%). Although the company is generally known to the general public as a retailer, its profitability is heavily dependent on the results of its enduringly popular Amazon Web Services (AWS), which offers a set of cloud functionalities. And that, as they say, was the rub.
Amazon reported its first-quarter results after market hours Thursday, and they were cause for concern largely because of AWS. The unit's revenue growth clocked in at 16% year over year (to more than $21 billion), but that rate is well below some of the numbers it's posted in the recent past -- like 37% in Q1 2022.
To be sure, there's still plenty of growth left in AWS' tank and, by extension, those of more niche cloud-service operators like Atlassian, Datadog, Zscaler, and MongoDB. But investors tend to get nervous when the year-over-year improvements show notable declines.
Now what
It certainly isn't panic time for any of those companies, Amazon included. The shift to the cloud is a long-tail trend, with all types and sizes of enterprises needing to migrate at least some of their operations skyward. It's just a question of how crowded this market is going to get with providers and how effective they'll be in claiming big slices of the pie.
