Amazon raises AI spending to $220 billion as cloud growth accelerates
AWS delivered its strongest performance in 18 quarters, reinforcing the case for Big Tech's massive AI infrastructure investments.
Amazon delivered its strongest cloud computing growth in more than four years, raising its annual capital expenditure forecast as surging demand for artificial intelligence services reinforced its argument that massive AI investments are beginning to pay off.
The results helped answer one of the biggest questions hanging over Amazon and its Big Tech peers: whether hundreds of billions of dollars being poured into AI data centers and chips are generating sufficient returns.
CEO Andy Jassy said demand remained so strong that Amazon still lacked enough computing capacity to serve customers, despite increasing its capital spending forecast by 10% to $220 billion this year.
Shares of the Seattle-based company jumped in after-hours trading.
Amazon Web Services (AWS), the company's cloud computing division, reported second-quarter revenue of $42.2 billion, up 37% from a year earlier, its fastest growth in 18 quarters and well ahead of analysts' expectations for 31.2% growth, according to LSEG.
"AWS is booming," Jassy said in a statement. "Our AI and chips businesses each eclipsed run rates of more than $25 billion."
He said higher memory chip costs were one of the main reasons Amazon raised its capital spending forecast.
"Even at that amount, we will still not have enough capacity to meet all of the demand we have in 2026," Jassy told investors. "I believe this dynamic will also be true in 2027."
AWS's contract backlog surged to $496 billion, up from $364 billion at the end of the previous quarter, underscoring continued demand from enterprise customers.
The aggressive investment came at a cost. Amazon's trailing 12-month free cash flow swung to negative $7.6 billion, compared with positive $18.2 billion a year earlier.
The decline mirrors trends across Big Tech, with Microsoft, Alphabet and Meta also reporting significantly weaker free cash flow as AI infrastructure spending accelerates.
Nevertheless, Amazon's performance echoed similarly strong cloud results from Microsoft and Alphabet, reinforcing investor confidence that demand for AI computing capacity remains robust.
"There were concerns about AWS losing market share, but that's been put to bed now," said Dan Morgan, portfolio manager at Synovus Trust. "It provides further evidence that AWS's lead remains intact. The AI tide is lifting all boats."
The results are likely to ease investor concerns that Big Tech is overspending on AI infrastructure. The industry's combined AI-related capital expenditures are expected to exceed $700 billion this year, putting pressure on cash flows and raising fears that companies may be building more capacity than demand ultimately requires.
Amazon argues the opposite: that demand continues to outpace supply.
Jassy explained that Amazon typically begins investing in new data centers roughly two years before they become operational, creating a period during which cash flows out long before revenue begins to arrive.
Once operational, however, those facilities can generate revenue for decades, while AI servers typically recover their cost in less than three years before producing additional profits for several more years.
His comments echoed similar remarks made this week by Meta CEO Mark Zuckerberg.
Jassy also said "the lion's share" of AWS computing capacity planned for 2027 has already been reserved by customers, with substantial capacity for 2028 also committed.
AWS has expanded its customer base this year through major cloud infrastructure and chip agreements with OpenAI, Anthropic, Meta, Pinterest and Snowflake.
Outside cloud computing, Amazon continued investing heavily in its retail business, expanding faster delivery services and increasing coverage in rural parts of the United States.
The company also benefited from its annual Prime Day event during the quarter. According to Adobe Analytics, consumers spent more than $26.4 billion during the promotion, purchasing discounted electronics, appliances and everyday household items.
Advertising also remained a bright spot. Revenue from ads across Amazon's shopping platform and Prime Video rose 26% year over year to $19.8 billion, reflecting continued growth in one of the company's highest-margin businesses.
