Amazon stock surged 15.32% on July 31 following strong second-quarter earnings, as the company’s cloud division delivered its fastest growth in 18 quarters on accelerating artificial intelligence demand. AWS revenue climbed 37% year-over-year to $42.2 billion, significantly outpacing Wall Street’s forecast of 31% growth and driving the broader earnings beat.
Total Q2 revenue reached $200.6 billion, up 20% year-over-year and topping the consensus estimate of $196.47 billion. Operating income surged 43% to $27.46 billion, beating the $23.57 billion consensus forecast.
The AWS acceleration reflects how aggressively enterprises are adopting cloud-based AI services. According to CEO Andy Jassy, AWS’s AI business alone now runs at a rate exceeding $25 billion annually, up triple-digit percentage year-over-year. Jassy told investors that demand for AWS capacity will likely exceed supply through 2027, pushing Amazon to raise its full-year 2026 capital expenditure guidance by $20 billion to $220 billion, largely because of higher memory costs.
The AWS backlog closed the quarter at $496 billion, up from $364 billion last quarter, providing strong visibility into future revenue. This backlog includes a $100 billion collaboration announced in April with AI startup Anthropic, signaling Amazon’s commitment to building out AI infrastructure for enterprise customers.
Wall Street responded positively to Amazon’s capital spending increase, a reaction that contrasted sharply with earlier market responses to similar guidance raises at competitors. When Alphabet and Meta raised capex guidance in recent quarters, their shares fell as investors worried about returns on massive AI infrastructure spending. Amazon’s stock did not flinch, suggesting the market is more confident in the company’s ability to monetize its cloud investments.
Morgan Stanley analyst Brian Nowak raised his price target to $335 from $330, citing AWS’s acceleration as evidence of strong returns on Amazon’s AI investment. According to Morgan Stanley’s analysis, 56 of the 59 analysts covering Amazon rate the stock a buy, with an average price target of $322.12.
Jassy emphasized on the earnings call that Amazon’s massive capex will eventually drive compelling returns. “As we get a few years out and the revenue growth outpaces the incremental capex growth, which will happen at some point,” he said, “the resulting revenue, free cash flow and return on invested capital is very compelling.” He added that AWS will allocate capital to land, power, buildings, and custom chips designed to run AI workloads efficiently.
The strong AWS performance and Amazon’s confident guidance on AI monetization stand in contrast to broader market uncertainty about the sustainability of hyperscaler spending on AI infrastructure. Amazon’s results suggest that at least one major cloud provider has found a clear path to justifying its massive AI investments through revenue growth and operating leverage.
Sources
- PrimeXBT — Amazon stock surge of 15.32%, Morgan Stanley price target raise, AWS backlog, and analyst coverage data
- Yahoo Finance — AWS revenue growth of 37%, total Q2 revenue of $200.6 billion up 20%
- CNBC — Amazon CEO Andy Jassy’s earnings call commentary on AWS growth, capex guidance, and AI demand outlook
- Reuters — Amazon capex raise to $220 billion and AWS cloud growth acceleration
- About Amazon (official) — AWS revenue growth of 36.7% year-over-year, AI and core services driving growth
- Investors.com — AWS growth of 37% versus analyst forecast of 31%
- Data Center Knowledge — Amazon capex raise to $220 billion, capacity constraints through 2027
