Who is right about the data center? Who can tell us if there is a slowdown or not?
When we look at Friday's decline and fall of anything having to do with cloud and the data, we find ourselves wondering if this is the end of the greatest secular theme of the era, the expansion of the cloud as the heart of information technology spending.
Now, it takes a lot to stick a fork in a tremendous secular theme. But you can see how it can happen in this, an environment where, until today everything seems to be going wrong.
I have been saying for weeks that there is a new narrative that the cloud is slowing down but it's been so anecdotal that I always feel like I am shadow-boxing. You can't pin down who or what is behind the myth or actuality of the cloud hiccup, blip or de-acceleration other than to say "okay, nothing can last this long."
So now we are stuck with thinking, hmm, what do they have in common? Why it is the cloud of course, the cloud. It doesn't seem to matter that the cloud isn't all that important to Alphabet in part because Google cloud simply hasn't been able to catch up to Amazon and Microsoft (MSFT) . Nor does it seem to matter that I could say the miss from Amazon might as well have been from advertising or retail, although no one wants to believe the latter because of the storyline of the uber-consumer.
It's got to be the cloud that's weak.
And then we get the most negative pronouncement about the cloud you can get from a relatively neutral party, Western Digital (WDC) , which has an important presence with flash memory in the cloud: "We are experiencing a temporary slowdown in data center capital spending, particularly by large cloud service providers after several quarters of growth above the expected long-term exabyte growth rate. "
Why is this? How about this believable thesis issued by Steve Milligan, the straight-shooting CEO of Western Digital: "Current geopolitical and industry dynamics are creating a challenging global business environment. For example, trade tensions with China, changes in monetary policy foreign exchange volatility and corresponding economic impact are causing our customers to be more conservative resulting in a demand slowdown for our products."
With that incredibly hostile prism sellers swarmed everything data center: the data center REITs were down 7%, the cloud kings wilted on the vine and the WDC news definitely contributed to the inability of Amazon or Alphabet to rally even as I would say that Amazon's miss was a rounding error and Alphabet actually had so many positives to say that I could easily chalk the whole thing up to weak forecasting by the company. It wouldn't be the first time.
But then yesterday IBM (IBM) paid $33 billion for Red Hat (RHT) , one of the biggest tech acquisitions ever and certainly the biggest in the cloud. Now I know what's going to be said. The critics will shout "that confirms it, that's the top to the cloud for certain. You know IBM's always late." No one is going to go back and dispute last week's negative news because why would Western Digital not be speaking the truth. It's hard. I know that I totally subscribe to the global slowdown thesis that WDC articulates. Why would WDC mention "large cloud service providers" presumably Alphabet, Microsoft, Alibaba (BABA) and Google. Why not just say "some customers."
If the slowdown is real I can understand how tech could go lower. Just look at where the stocks of Western Digital or Micron (MU) - also flash - have gone. But I struggle over the concept that perhaps there's been a surfeit of data centers being built, something that big data center REIT CyrusOne (CONE) told me isn't the case, nor has Workday (WDAY) , ServiceNow (NOW) , Veeva (VEEV) and Salesforce (CRM) .
I think there is enough in the air to give the big cloud providers the benefit of the doubt after this decline. I think that the cloud kings remain red hot. I have been a bear on the economy and the market, but I can see this group bottoming a heck of a lot faster than others even as I question the velocity and ferocity of this move higher.