Amazon reported Q2 earnings buoyed by AWS cloud business, which posted $42.2 billion in revenue—its fastest growth in 18 quarters—and a $496 billion backlog.
CEO Andy Jassy announced the company will spend $220 billion on capital expenditures in 2026 to expand AI infrastructure, yet cautioned that even at this elevated level, Amazon will still lack sufficient capacity to meet demand in both 2026 and 2027.
What happened
Amazon reported Q2 revenue of $200.6 billion, up 20% year-over-year, with AWS cloud business posting $42.2 billion in revenue, up 37% from a year ago and marking its fastest growth in 18 quarters. CEO Andy Jassy announced the company now expects to spend $220 billion in capital expenditures in 2026, up from a prior estimate of $200 billion, citing higher memory costs.
Why it matters
AWS is now operating at a $169 billion annualized revenue run rate, which would rank it 24th on the Fortune 500 if standalone, and its backlog grew to $496 billion—signaling massive future demand. Despite the spending increase, Jassy stated Amazon still won't "have enough capacity to meet all the demand we have in 2026," a constraint he expects will persist into 2027, suggesting competition for AI infrastructure will remain intense.
What to watch
AWS operating income surged 64% year-over-year to $16.6 billion on a 39.4% margin, up from 32.9% a year ago, and AWS has now delivered five consecutive quarters of accelerating growth. Free cash flow flipped to negative $7.6 billion in Q2, driven by a $66.1 billion year-over-year increase in equipment purchases for AI investments, reflecting the company's heavy commitment to capacity expansion.
Amazon reported strong second-quarter results on Thursday, with stock price jumping more than 9% in after-hours trading. Net sales across all business units—stores, advertising, Prime, devices, and cloud—rose 20% to $200.6 billion, compared with $167.7 billion a year earlier. Operating income surged to $27.5 billion from $19.2 billion, and net income hit $62.6 billion, or $5.75 per diluted share, though this figure includes $53.4 billion in non-operating income primarily from Amazon's investments in Anthropic.
The standout performer was AWS, the cloud computing business. AWS posted $42.2 billion in revenue in Q2, up 37% from $30.9 billion a year ago, representing the fastest growth the unit has achieved in 18 quarters (roughly 4.5 years). This marked AWS's fifth consecutive quarter of accelerating growth. AWS added more than $4.6 billion in revenue quarter-over-quarter, and operating income surged 64% to $16.6 billion, with an operating margin of 39.4%, up from 32.9% a year ago. CEO Andy Jassy highlighted the scale of the business during the earnings call: "AWS is now a $169 billion dollar annualized revenue run rate business, which, for perspective, would place it 24th on the Fortune 500 list if it was a standalone company." AWS's backlog—representing customer agreements for future revenue—grew to $496 billion, signaling extremely strong demand ahead.
Advertising, another growth driver, expanded 26% year-over-year, accelerating from 22% growth a year ago. Despite these successes, the company reported a striking cash flow swing: free cash flow flipped to negative $7.6 billion in Q2, compared with a positive $18.2 billion inflow a year ago. This reversal stems from a $66.1 billion year-over-year increase in equipment purchases, which Amazon attributed to AI infrastructure investments. This figure underscores the massive capital intensity of the company's push into artificial intelligence.
Looking ahead, Jassy told investors that Amazon now expects to spend $220 billion in capital expenditures in 2026, an increase from its prior guidance of $200 billion, driven by higher memory costs. Yet despite this elevated spending—already a record for the company—Jassy delivered a sobering message: Amazon still will not "have enough capacity to meet all the demand we have in 2026. And I believe this dynamic will also be true in 2027 too." This admission reveals a persistent structural shortage of AI and cloud infrastructure across the industry, even as hyperscalers commit hundreds of billions to expansion.
AWS has emerged as a powerful growth engine within Amazon, now operating at a $169 billion annualized revenue run rate and delivering its fastest growth in 18 quarters. The cloud unit's Q2 revenue of $42.2 billion, up 37% year-over-year, reflects surging demand for cloud and AI services, evidenced by a backlog that swelled to $496 billion. This backlog—representing customer agreements for future revenue—underscores persistent, pent-up demand for cloud infrastructure that Amazon is racing to fulfill.
However, the company faces a structural constraint: even as it dramatically escalates capital spending from $200 billion to $220 billion in 2026, CEO Jassy explicitly stated that Amazon will still lack sufficient capacity to meet demand in 2026 and expects this shortage to persist into 2027. This capacity gap reflects broader industry dynamics in which hyperscalers and cloud providers are committing more than $800 billion across the sector to data center and AI infrastructure buildout, yet demand for these resources continues to outpace supply. The earnings call reveals an industry in which infrastructure scarcity, not demand creation, is the binding constraint—a dynamic that may persist for years despite unprecedented capital deployment.
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