Amazon’s AWS unit reached a 39% operating margin in the second quarter of 2026, a record high that underscores the cloud division’s profitability even as Amazon stock has declined from recent highs amid investor concerns about massive capital spending. The margin expanded 650 basis points from 32.9% a year earlier, driven by AWS revenue growth of 37% to $42.2 billion—its fastest pace since the end of 2021—according to Amazon’s July 30 earnings report.
Operating income in AWS rose 64% to $16.6 billion in the quarter, demonstrating that the company’s heavy investment in AI infrastructure is beginning to convert revenue growth into profit. CEO Andy Jassy highlighted in the earnings release that AWS, along with Amazon’s AI and custom chips businesses, had each exceeded run rates of more than $25 billion.
The strong AWS performance contrasts sharply with broader market concerns about Amazon’s spending trajectory. On its earnings call, Amazon raised its 2026 capital expenditure forecast to $220 billion, up from an earlier $200 billion projection, citing higher costs for memory chips. The company now expects to spend roughly 80% of that capex on AI infrastructure and data centers.
That heavy spending has created a cash flow squeeze. Amazon’s free cash flow turned negative by $7.6 billion over the past 12 months—the first shortfall since 2023—as the company spent $169 billion net on property and equipment, up $66.1 billion from a year earlier, according to GeekWire’s analysis of the earnings report. A year prior, the company had generated $18.2 billion in free cash flow.
Why the Stock Decline Despite AWS Strength
Amazon stock has fallen from a 52-week high of $287.20 set on August 3 to around $258.51 as of September 8, reflecting investor jitters over the capex commitments. The stock initially jumped more than 8% in after-hours trading on the July 30 earnings announcement, but broader market sentiment has soured on Big Tech’s AI spending plans.
CEO Jassy defended the spending strategy on the earnings call, framing it as a matter of timing. Data centers require capital roughly two years before servers can be installed and begin generating revenue, he explained, but once operational they can be monetized for more than 30 years without repeating that upfront cost. Most of Amazon’s AI capacity is now contracted for terms of five years or longer, he added.
AWS’s margin expansion follows a period of steady improvement. In Q1 2026, AWS had posted a 38% operating margin, and the cloud division has consistently delivered margins above 30% over the past several years. The 39% figure in Q2 2026 marks the highest level AWS has achieved, according to historical data tracked by analysts.
The contrast between AWS profitability and overall free cash flow challenges reflects a broader dynamic in Big Tech: cloud divisions are now mature, high-margin businesses, but the race to dominate AI infrastructure is forcing companies to absorb massive near-term cash outlays. Investors remain divided on whether the payoff will justify the spending, particularly given that data centers take years to break even on the initial capex investment.
Sources
- Amazon Investor Relations — Q2 2026 earnings release, July 30, 2026, confirming AWS operating margin of 39%, operating income of $16.6 billion, and revenue of $42.2 billion
- GeekWire — July 30, 2026 earnings analysis detailing free cash flow decline to negative $7.6 billion and capex increase to $220 billion for 2026
- Yahoo Finance — Stock price data and AWS margin confirmation
- SEC Filings — Amazon’s 10-Q for Q2 2026, filed July 30, confirming AWS operating income of $16.6 billion versus $10.2 billion in Q2 2025
