What happened
Amazon CEO Andy Jassy said the company will spend $220 billion in capital expenditures in 2026, up from a prior estimate of $200 billion, due to higher memory costs. Despite this elevated spending, Jassy stated Amazon still won't "have enough capacity to meet all the demand we have in 2026" and expects this capacity constraint to continue into 2027. AWS posted $42.2 billion in Q2 revenue, up 37% from $30.9 billion a year ago, marking its fastest growth in 18 quarters.
Why it matters
AWS's accelerating growth—now a $169 billion annualized revenue run rate—is fueling Amazon's overall earnings surge, with net income hitting $62.6 billion in Q2. The scale of capital spending ($220 billion) signals how aggressively Amazon is betting on cloud and AI infrastructure to capture enterprise demand. However, the inability to build capacity fast enough to meet demand suggests the AI infrastructure market is structurally constrained, which could limit AWS's ability to convert customer interest into revenue.
What to watch
AWS is on pace to double its power capacity by the end of 2027 compared with 2025. Customer adoption of Bedrock—Amazon's platform for accessing AI models from Anthropic, Meta, and OpenAI—saw customers spend more on the service in Q2 than in all prior quarters combined.
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AWS's growth acceleration began in Q3 2025 at 20% and has steadily quickened each quarter, reaching 37% in Q2—the fastest rate in 18 quarters. During this same period, AWS operating margins expanded from 32.9% a year ago to 39.4%, even as the company invested heavily in data-center infrastructure. This simultaneous margin expansion and capex intensity reveals a business hitting a sweet spot: customers are adopting cloud and AI services faster than AWS can build capacity, pushing utilization rates higher and operating leverage stronger.
Jassy attributes the growth to AWS's breadth—"the broadest functionality across both cloud core and AI"—and to a structural shift in how enterprises deploy AI. As companies move inference workloads to production, they want those workloads to run alongside their existing data and applications, and the vast majority of enterprise workloads already live in AWS. Jassy also noted that 85% of global IT spending remains on-premises, implying a decades-long runway for cloud migration. His assertion that this equation will flip within 10 to 20 years underscores how AWS and Amazon view the multi-year demand horizon.
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