About the authenticity
The hadith is regarded as hassan by a majority of scholars. It appears in several sources among them Musnad Ahmad and Jami' at-Tirmidhi.
Is the interpretation "clouds" the only one existing
The point in this hadith is the interpretation of the word:
Most translations interpreted it as clouds, ibn al-Athir saidthis word was referring to light clouds, heave clouds or even fog.
While some refer to different versions of the hadith quoting:
which means nothing or emptiness or absence in that case the hadith would be translated as follows:
"I said: 'O Messenger of Allah, where was our Lord before He created His creation?' He said: He was surrounded by nothing
above the clouds, below which was air, and above which was air and water. Then He created His Throne above the water.'"
This interpretation doesn't create any issue and is in clear correspondance to the qur'an and sahih sunnah:
And it is He who created the heavens and the earth in six days - and His Throne had been upon water ... (11:7)
... First of all, there was nothing but Allah, and (then He created His Throne). His throne was over the water ... (Sahih al-Bukari)
strictly speaking doesn't mean "above clouds", but "in the middle" or "surrounded by clouds" except with if we consdier the ruling of the Basri school of Arabic grammar which says that Huroof al-Jarr are inter changeable.
A look into a hadith commentary
In his Tohfat al-Ahwadhy تحفة الأحوذي -see here in Arabic- al-Mubarakpuri addressed this and quoted the views of scholars. As a main issue in this hadith statement are these three matters:
The occasion /Time period.
The location: above and under (below).
As all of these may cause an embodiment of Allah may which we seek refuge from Allah of describing HIM like a human.
For example he quoted statementsof al-Azhary:
In the following I'm translating from Arabic language, as these translations are of my own take them carefully!
وَقَالَ الْأَزْهَرِيُّ : قَالَ أَبُو عُبَيْدٍ : إِنَّمَا تَأَوَّلْنَا هَذَا الْحَدِيثَ عَلَى كَلَامِ الْعَرَبِ الْمَعْقُولِ عَنْهُمْ ، وَإِلَّا فَلَا نَدْرِي كَيْفَ كَانَ ذَلِكَ الْعَمَاءُ .
Al-Azhary said: Abu 'Obayd said: We only interpreted this hadith based on the language and speech of the Arabs which seems reasonable (and was reasonably and correctly transmitted from them), as else we don't know how this الْعَمَاءُ (al-'Ama') was?
قَالَ الْأَزْهَرِيُّ : فَنَحْنُ نُؤْمِنُ بِهِ وَلَا نُكَيِّفُ صِفَتَهُ .
He further said: We believe in it but don't ask why nor try to adpt his attributes.
Al-Mubarakpuri also quoted from a commentary of imam as-Suyuti on Sunan ibn Majah saying:
وَقَالَ السُّيُوطِيُّ فِي مِصْبَاحِ الزُّجَاجَةِ : قَالَ الْقَاضِي نَاصِرُ الدِّينِ ابْنُ الْمُنَيِّرِ : وَجْهُ الْإِشْكَالِ فِي الْحَدِيثِ الظَّرْفِيَّةُ وَالْفَوْقِيَّةُ وَالتَّحْتِيَّةُ ،
As-Syuti said in Misbah at-Zujajah: al_Qadi Nasir-u ad-Dyn ibn al-Muneer said: the point of discussion or issue in this hadith are in the occasion, aboveness, belowness.
قَالَ وَالْجَوَابُ أَنَّ " فِي " بِمَعْنَى عَلَى ، وَعَلَى بِمَعْنَى الِاسْتِيلَاءِ ، أَيْ كَانَ مُسْتَوْلِيًا عَلَى هَذَا السَّحَابِ الَّذِي خَلَقَ مِنْهُ الْمَخْلُوقَاتِ كُلِّهَا وَالضَّمِيرُ فِي فَوْقِهِ يَعُودُ إِلَى السَّحَابِ ، وَكَذَلِكَ تَحْتَهُ ، أَيْ كَانَ مُسْتَوْلِيًا عَلَى هَذَا السَّحَابِ الَّذِي فَوْقَهُ الْهَوَاءُ وَتَحْتَهُ الْهَوَاءُ ،
He said and the answer of this is that "فِي" comes here in the meaning of "عَلَى" and عَلَى itself comes in the meaning of possession. This means HE possessed these clouds from which HE created all the kinds of HIS creation. And the reference in "above which" is about these clouds and the sasme applies to the reference in "below which". This means HE was in possession of these clouds which were above the air and below the air.
وَرُوِيَ بِلَفْظِ الْقَصْرِ فِي الْعَمَى . وَالْمَعْنَى عَدَمُ مَا سِوَاهُ كَأَنَّهُ قَالَ : كَانَ وَلَمْ يَكُنْ مَعَهُ شَيْءٌ ، بَلْ كُلُّ شَيْءٍ كَانَ عَدَمًا عَمًى لَا مَوْجُودًا وَلَا مُدْرَكًا ، وَالْهَوَاءُ : الْفَرَاغُ أَيْضًا الْعَدَمُ كَأَنَّهُ قَالَ : كَانَ وَلَا شَيْءَ مَعَهُ وَلَا فَوْقَ وَلَا تَحْتَ . انْتَهَى .
And this hadith was narrated using "الْعَمَى" instead which means that nothing else existed beside HIM or it was non existing or absent, as if he said: HE was and nothing was there except with him, in fact anything else was not existing, neither created nor possibleto identify. And the "air" (الْهَوَاءُ ) means the emptiness and absence too as if he meant tosay: HE was and nothing was there with him neither above nor below HIM. End of the quote.
Al-Mubarakpuri added his conclusion about both varaiation and quoted the above sahih Hadith as an evidence for the second. As for the first he said:
وَإِنْ صَحَّتِ الرِّوَايَةُ " عَمَاءً " بِالْمَدِّ ، فَلَا حَاجَةَ إِلَى تَأْوِيلٍ بَلْ يُقَالُ نَحْنُ نُؤْمِنُ بِهِ وَلَا نُكَيِّفُهُ بِصِفَةٍ ، أَيْ نُجْرِي اللَّفْظَ عَلَى مَا جَاءَ عَلَيْهِ مِنْ غَيْرِ تَأْوِيلٍ كَمَا قَالَ الْأَزْهَرِيُّ ( وَخَلَقَ عَرْشَهُ عَلَى الْمَاءِ ) وَفِي رِوَايَةِ أَحْمَدَ : ثُمَّ خَلَقَ عَرْشَهُ عَلَى الْمَاءِ .
If the version or narration (عَمَاءً) was correct with the extention with a hamzah, there's no interpretation necessary, but we say we believe in Allah and we don't adapt HIS attributes, this means we accept the expression as it was narrated without interpretation as said by al-Azhary (and HE created HIS thorne on water), or as it is stated in the narrative of imam Ahmad: then HE cretaed HIS thorne on water.