Amazon Boosts AI Capex as AWS Growth Accelerates

Key Moments

Amazon boosted its annual capital spending outlook by 10% to $220 billion as AI-related demand strained existing computing capacity.
AWS revenue rose 37% to $42.2 billion in the quarter ended June 30, its fastest pace in 18 quarters and well ahead of analyst expectations.
Free cash flow swung to a $7.6 billion outflow on a trailing 12-month basis, compared with $18.2 billion in free cash flow a year earlier, amid surging AI infrastructure investments.

Cloud Momentum Drives Larger Investment Plans

Amazon reported its strongest cloud growth in more than four years and simultaneously lifted its full-year capital expenditure forecast, underscoring management’s confidence that intensive investment in artificial intelligence infrastructure is being met with robust demand.

The company said it now expects to spend $220 billion on capital projects this year, a 10% increase, with Amazon CEO Andy Jassy highlighting that the current level of demand still exceeds the firm’s available computing resources.

Shares of the Seattle-based company jumped nearly 9% in post-market trading, building on a gain of 3.9% during the regular session.

AWS Delivers Outperformance and Expanding Backlog

Amazon Web Services, the company’s cloud computing business, generated revenue of $42.2 billion in the second quarter ended June 30, an increase of 37%. That performance surpassed analysts’ consensus forecast for a 31.21% rise, based on data from LSEG.

“AWS is booming,” Jassy said in a statement, noting it was the unit’s fastest growth in 18 quarters. “Our AI and chips businesses each eclipsed run rates of more than $25 billion.”

He pointed to memory chip purchases as a major factor behind the higher capital spending outlook. “Even at that amount, we will still not have enough capacity to meet all of the demand we have in 2026,” he said on a call with investors. “I believe this dynamic will also be true in 2027 too.”

AWS contract backlogs reached $496 billion at the end of the quarter, up from $364 billion in the prior three-month period, reflecting sustained customer commitments.

Metric	Latest Period	Prior/Reference Period	Change / Comment
AWS revenue	$42.2 billion	Analyst estimate: 31.21% growth	Actual growth: 37%
AWS contract backlog	$496 billion	$364 billion (prior quarter)	Backlog expanded by $132 billion
Capital spending forecast	$220 billion	Prior forecast (implied)	Raised by 10%
Free cash flow (trailing 12 months)	-$7.6 billion	$18.2 billion (year earlier)	Turned sharply negative
Ad revenue	$19.8 billion	Year-ago quarter	Up 26%

Cash Flow Pressures Amid Industry-Wide AI Investment

Amazon’s free cash flow deteriorated markedly as investment accelerated. On a trailing 12-month basis, the company recorded a $7.6 billion cash burn in the second quarter, compared with $18.2 billion in free cash flow a year earlier.

The company’s experience was similar to that of other large technology firms such as Microsoft, Alphabet and Meta, which also reported steep declines in free cash flow as they increased spending on AI-related infrastructure.

Despite the cash strain, Amazon’s cloud performance lined up with strong results from rivals Microsoft and Alphabet, both of which also exceeded Wall Street expectations for cloud revenue. “There were concerns about market share losses on AWS, but that’s been put to bed now,” said Dan Morgan, portfolio manager at Synovus Trust. “It just gives more evidence that AWS’s lead is still intact. The AI tide is rising all boats here.”

Capacity Build-Out and Long-Term Economics

The scale of ongoing capital commitments has raised questions among investors about whether Big Tech is overextending on AI data centers and chips. Industry-wide spending on such projects was described as set to surpass $700 billion this year, pressuring cash generation at previously cash-rich companies.

Amazon and its peers have argued that the spending is essential to alleviate capacity bottlenecks that limit their ability to fully capture AI-driven demand. They point to growing contractual backlogs as evidence of future revenue streams tied to these investments.

On the investor call, Jassy outlined the financial profile of these projects, explaining that Amazon typically begins investing in data centers around two years before they become operational. During that period, capital is deployed without corresponding revenue.

Once online, he said, those facilities can produce revenue for about 30 years, while AI servers generally recover their cost in under three years and continue to generate profits for an additional two to three years. His remarks were described as echoing comments made by Meta CEO Mark Zuckerberg on Wednesday.

Looking ahead, Jassy noted that the “lion’s share” of AWS compute capacity for 2027 has already been reserved by customers, and that the company also has “quite a bit of capacity” reserved for 2028.

Partnerships and AI Ecosystem Expansion

AWS has been supported this year by an expanding set of relationships with high-profile technology players. Those include large-scale cloud infrastructure and chip supply arrangements involving OpenAI, Anthropic, Meta, Pinterest and Snowflake.

These partnerships contribute to the increasing backlog and reinforce the demand underpinning Amazon’s elevated infrastructure build-out.

E-Commerce, Prime Day and Advertising Growth

Beyond cloud, Amazon has continued to invest in its core retail operations. The company has been deploying faster delivery options globally and moving into more rural regions of the United States in an effort to attract additional shoppers.

Amazon also held its annual Prime Day promotion during the quarter. Customers bought discounted electronics, appliances and everyday essentials, with Adobe Analytics estimating total spending at more than $26.4 billion.

Advertising remained another bright spot. As Amazon adds more ad inventory across its services, including Prime Video and its main shopping site, the company reported that ad sales increased 26% year over year to $19.8 billion.