Amazon Q2 Earnings Beat Expectations as Cloud Business Accelerates, Easing AI Investment Concerns; Raises Full-Year Capital Expenditure to $220 Billion!
Financial results showed that Amazon's total revenue for the second quarter increased 20% year-on-year to $200.6 billion, exceeding analysts' average expectation of $197.0 billion. Net income reached $62.6 billion, up 245% year-on-year, including $53.4 billion in pre-tax non-operating other income, mainly attributable to its investment in Anthropic. Diluted earnings per share came in at $5.75, well above the average analyst expectation of $1.82.
Most notably, Amazon Web Services (AWS) revenue rose 37% year-on-year to $42.2 billion, marking its fastest growth since the fourth quarter of 2021. Amazon's CEO stated that AWS is thriving and highlighted the strong momentum in both its AI business and its in-house chip division, with each now generating annualized revenue of more than $25 billion and achieving triple-digit year-on-year growth.
Like other major technology companies, Amazon is investing aggressively in data centers and chips to capitalize on rapidly growing demand for AI and cloud computing services. The company's second-quarter capital expenditure reached $54.2 billion, up from $32.1 billion in the same period last year. Heavy investment in AI products and infrastructure pushed free cash flow into negative territory. As of the end of the second quarter, Amazon recorded a $7.6 billion free cash flow outflow over the past 12 months, compared with a $18.2 billion inflow a year earlier.
Amazon also raised its 2026 capital expenditure forecast from the previously expected $200 billion to $220 billion. Most of the additional spending will be directed toward AI, while rising memory prices within the AI sector have also pushed up the company's capital expenditure expectations. Amazon's spending surge is unlikely to slow in the near term.
Amazon's investment in AI infrastructure is critical to meeting the growing demand for its cloud services. AWS backlog reached $496 billion during the quarter. Although capital expenditure increased and free cash flow turned negative, investors are unlikely to be overly concerned, given that AWS revenue growth continues to accelerate while the company maintains strict cost controls in other business areas.
Beyond cloud computing, Amazon's e-commerce business remained the company's largest revenue contributor. Second-quarter online store sales increased 15% year-on-year to $70.4 billion, surpassing analysts' average expectation of $69.9 billion. Amazon's annual Prime Day sales event, held in June, helped drive total online retail spending across all U.S. retailers to $26.4 billion.
Market Insight:
Looking ahead, Amazon expects third-quarter revenue to range between $197.0 billion and $202.0 billion, below analysts' average expectation of $203.9 billion. The company also forecasts operating income between $22.5 billion and $26.5 billion, with the midpoint of $24.5 billion also falling short of analysts' average expectation of $25.1 billion.
