Amazon's $496B AWS backlog shields it from AI capex fears

The article argues that Amazon's valuation discount due to AI capex fears overlooks the strength of its contracted cloud demand. The $496 billion AWS backlog, growing at triple digits, indicates that customers have committed to multi-year contracts for AI capacity, reducing the risk that the heavy spending on data centers and chips won't generate returns. This is supported by Jassy's statement that most of the 2027 capacity is already reserved.

AWS is re-accelerating with a 37% year-over-year revenue growth in Q2 FY26, the fastest in 18 quarters, and a 39.4% operating margin. The business also benefits from custom silicon like Graviton and Trainium, with Anthropic and OpenAI making multi-year commitments. Advertising adds another layer, with high conversion rates on retail traffic, further diversifying revenue streams.

The capex risk is real, with Q2 capex up 68.44% year over year and free cash flow negative. However, the article suggests that the contracted nature of the demand and the long-term monetization of data centers (30-plus years) justify the spending. The balance sheet remains strong, with low leverage and high cash, indicating Amazon can fund the $200 billion 2026 capex plan without financial strain.