Amazon's cloud surge powers 10% stock jump despite $220B capex push

Amazon reported second-quarter earnings on Thursday that exceeded investor expectations, driving the stock up nearly 10% in after-hours trading. Net sales rose 20%, but the standout was AWS, which grew 37% year over year and generated $42 billion in revenue for the quarter. This combination of top-line growth and cloud strength was sufficient to convince investors that Amazon's massive infrastructure spending is justified.

That spending is substantial. For the fiscal year ended June 30, Amazon spent $173 billion on property and equipment — a category covering GPUs, natural gas turbines, and real estate — nearly 61% more than the $107.65 billion it spent the year before. Looking ahead, the company raised its 2026 capex forecast from $200 billion to $220 billion. To fund this expansion, Amazon has begun drawing down its cash reserves; it ended the quarter with $7.6 billion less cash than 12 months prior, marking its first period of negative free cash flow in 2024. Despite this cash drain, investors embraced the spending because AWS revenue is growing alongside capacity additions, suggesting demand will eventually absorb the new infrastructure.

Amazon's long-term AI strategy goes beyond data center construction. The company is investing in custom chips — Trainium TPU and the Arm-based Graviton processor — that don't appear in capex figures but can substantially improve cloud business margins. CEO Andy Jassy said during the Q2 earnings call that "AWS and Amazon Bedrock can have a wildly successful business without its own frontier model, and the reason is that there's not going to be a single model to rule them all." This positioning allows Amazon to profit from the broader AI ecosystem without being forced to compete directly with companies like OpenAI or Anthropic.

The market is currently ranking cloud hosts as the most reliable part of the AI economy. Microsoft and Google saw stock gains after reporting strong cloud revenue; by contrast, Meta's stock fell 8% despite earnings, as investors focused on its capex spending and cash burn without a corresponding revenue engine. Yet the article sounds a cautionary note: cloud hosts' competitive advantage is only as durable as their customers' ability to generate value from AI. AWS revenue is literally the AI spending bill of companies like Anthropic and other AI labs; if that spending cannot be sustained economically, cloud host revenue will eventually falter regardless of near-term growth.