Amazon surges 12% as AWS AI growth outpaces capital spending concerns

Amazon's second-quarter earnings report on Friday sent the stock soaring more than 12% before the bell, putting the e-commerce and cloud giant on track to add about $300 billion in market value. The driver was AWS, which posted 37% revenue growth to $42.2 billion in the quarter ended June 30—a pace that handily beat the consensus analyst estimate of 31.21% growth according to LSEG data. This marked the company's strongest cloud growth in over four years, and it arrived amid investor concerns that massive AI infrastructure spending across the tech industry could weigh on profitability and cash flows.

Amazon's leadership framed the results as evidence of supply constraints rather than demand weakness. CEO Andy Jassy told investors that demand remained so strong that the company's computing capacity proved insufficient to serve customers despite raising its capital spending to $220 billion—a 10% increase from prior guidance. The company's capacity crunch signals that AWS customers are ordering more AI services than Amazon can currently provision, a problem that typically argues for continued heavy investment but also suggests durable revenue growth ahead.

The market's response to Amazon contrasted sharply with Alphabet's experience the previous week. When Google's parent reported its first negative cash flow stemming from AI-related spending, shares stumbled. At Amazon, investors looked past a similarly troubling swing in free cash flow—the company burned $7.6 billion on a trailing 12-month basis in Q2, compared to $18.2 billion in positive free cash flow a year earlier—and instead celebrated AWS momentum. At least five brokerages raised their price targets on the stock. J.P. Morgan said in a research note: "We're encouraged by the strength in the core AWS business, which has a high correlation with AI revenue, and we expect this relationship to further strengthen over time as more AI workloads move into full-scale production and drive additional demand for core services."

The divergence reflects what market observers call an increasingly "idiosyncratic" environment. According to Jake Behan, head of capital markets at Direxion, "The market is becoming increasingly idiosyncratic, rewarding companies that can successfully monetize AI investments while penalizing those with longer-duration paths to generating returns." Amazon's valuation now reflects this premium: the company trades at a price-to-earnings ratio of 24.67, exceeding both Microsoft's 22.94 and Alphabet's 19.35. Big technology spending on AI is set to exceed $700 billion this year and has pressured free cash flow across the industry, but Amazon has secured investor belief that its AWS business will turn that spending into sustained profit.