Amazon shares jumped more than 12% after its cloud division posted its fastest growth in over four years, easing investor fears that the company’s ballooning AI spending was running ahead of the payoff.
Amazon Web Services grew 37% in the second quarter, well past the roughly 31% analysts expected, adding something like $300bn to Amazon’s market value before the bell.
It was a sharp turn from the previous quarter, when a one-off Anthropic gain flattered the numbers and free cash flow collapsed.
AWS is the engine once more. The unit brought in $42.2bn in the quarter and reaccelerated to a pace it had not touched since the last cloud boom, reassuring a market that had grown nervous about the cost of AI.
The worry it soothed was specific. Investors have spent the year asking whether the hyperscalers are pouring hundreds of billions into data centres faster than customers will pay for the capacity.
Amazon’s answer was that demand is outrunning supply. Chief executive Andy Jassy said demand was so strong that the company’s computing capacity was not enough to serve customers, even after it raised its spending.
That spending is enormous. Amazon lifted its planned capital expenditure about 10% to roughly $220bn, one of the largest build-out budgets in corporate history, most of it aimed at AI and cloud.
The bill is showing up in cash flow. Free cash flow swung to negative $7.6bn on a trailing-twelve-month basis, down from a positive $18.2bn a year earlier, a reminder that the AI race is being paid for in real money.
Amazon has been funding it aggressively. The company has taken on billions in fresh debt to keep the data-centre build going, part of a wider borrowing spree across Big Tech.
The market decided the growth was worth it. At least five brokerages raised their price targets, focusing on the reacceleration in AWS rather than the cash outflow.
Analysts tied the two together. “We’re encouraged by the strength in the core AWS business, which has a high correlation with AI revenue,” JP Morgan wrote, arguing the link between cloud growth and AI will only tighten.
The result reframes a season of nerves. Big Tech’s combined capex has blown past $600bn, and each earnings report has become a referendum on whether that money is translating into revenue.
Amazon’s peers have faced the same test. Meta recently raised the floor on its AI spending even as its cash flow tightened, and Microsoft and Alphabet have leaned on cloud growth to justify their own outlays.
The read-through is sector-wide. With Microsoft, Alphabet, and now Amazon all pointing to cloud demand they cannot fully meet, the mood has shifted from questioning the spending to asking whether there is enough capacity to go around.
The comparison flatters Amazon for now. Its shares trade at a higher earnings multiple than Microsoft’s or Alphabet’s, a sign investors are willing to pay up for the growth AWS is showing.
There is a hardware story underneath. Amazon has been pushing its own custom AI chips, which Jassy has suggested could become a business worth tens of billions, giving it a lever on the costs that squeeze rivals.
The strategy is vertical integration at scale. By building chips, data centres, and cloud services together, Amazon is betting it can serve AI demand more cheaply than competitors who buy their silicon from Nvidia.
The risk has not vanished, only receded. If AWS growth slows again while capex stays near $220bn, the same cash-flow questions will return, and the market’s patience could prove thin.
For this quarter, though, Jassy got the number he needed. A reaccelerating cloud business is the clearest evidence Amazon can offer that its AI bet is being met with demand, not just hope.
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