Big Tech Q3 Revenue Takes Hit Amid Rising Data Center Energy Cost in Europe

In the week that Amazon, Alphabet, Meta, Microsoft and other Silicon Valley Big Tech firms announced their third quarter (Q3) earnings, the general picture reflected a worldwide slowdown in spending as most of the firms posted weaker-than-expected quarterly results.

And with swift retribution, traders responded by slashing nearly a trillion dollars off their combined valuations.

For these global companies, a strong U.S. dollar has depressed their global revenues and hit their bottom lines, a situation only made worse by the recent turmoil in the U.K.

Microsoft, for example, said that Q3 revenue that would have increased 16% at last year’s exchange rates only amounted to an 11% increase in real terms. The story is much similar at Alphabet, where Q3 revenues were up just 6% year-over-year (YoY) compared to 11% on a constant currency basis.

Another contributing factor impacting Big Tech’s poor financial performance is the increased cost of energy in the past year. In fact, energy bills in Europe have jumped by as much as 80% YoY, driven in part by more expensive natural gas following disruption to the supply from Russia.

These price increases are having a significant effect on operating costs for energy-heavy data centers operated by Microsoft Azure, Google Cloud and Amazon Web Services (AWS), for example.

Hinting at further challenges to come, policymakers in Ireland, where the national grid EirGrid estimates that by 2028 data centers could account for 29% of all demand, have floated the idea of forcing data center operators to generate their own electricity.

And Meta eventually shelved plans to build a huge data center in the Netherlands last July, following strong opposition from campaigners. Since then, the government has essentially issued a moratorium on the building of any new data centers that cover more than 10 hectares (1.076 million square feet) and have an electricity demand of 70 megawatts or more.

To help mitigate against the rising financial and environmental costs of energy, Apple is looking to drive green investment and recently announced continued gains from its sustainability initiatives. The company’s CEO Tim Cooke told investors that “across our entire product lineup, we also continue to source more materials through recycling while taking less from the Earth.”

According to Cooke, some of these proactive measures include using 100% recycled rare-earth elements in the manufacturing of magnets in the recently launched iPhone 14, using recycled gold on the circuit boards in Apple watches and iPads, and a soon-to-be-released clean energy charging feature for iPhones.

Ultimately, how businesses adapt to the longer term challenges posed by a warming planet and dwindling energy supply will have a significant impact on their growth.

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