Amazon stock rallies over 10% as AWS sales jump 37%, but one warning grows louder

Amazon stock NASDAQ:AMZN surged as much as 10% in extended trading on Thursday after the company delivered its strongest AWS growth in more than four years, providing evidence that its artificial-intelligence spending is producing returns.

AWS sales jumped 37% to $42.2 billion, accelerating from 28% in the previous quarter and beating Wall Street’s expectation of about 31%.

Cloud operating income rose 64% to $16.6 billion, lifting the division’s margin to 39.4%.

However, Amazon’s trailing free cash flow swung to a $7.6 billion outflow as management raised 2026 capital expenditure to about $220 billion.

Investors are rewarding exceptional cloud growth, but that patience could fade if revenue or margins weaken.

Amazon stock: AWS clears an unusually high Wall Street bar

Amazon’s revenue increased 20% to $200.6 billion, beating estimates near $197 billion. Operating income rose 43% to $27.5 billion.

AWS generated roughly 61% of group operating profit despite accounting for about 21% of sales.

Its annualised revenue run rate reached $169 billion, strengthening Amazon’s position against Microsoft Azure and Google Cloud.

“Overall, Q2 delivered a decisive top-line beat and the strongest consolidated and AWS margin print in several quarters,” Evercore ISI analyst Mark Mahaney said in a client note reported by MarketWatch.

The result mattered because Amazon did not accelerate AWS by sacrificing profitability.

Faster sales arrived alongside margin expansion, weakening concerns that the company was spending heavily merely to defend cloud market share.

Amazon reported diluted earnings of $5.75 a share, but investors should treat that figure cautiously.

Net income included $53.4 billion of non-operating pre-tax income, primarily linked to Amazon’s Anthropic investments.

$220 billion AI bill gets a pass

Chief executive Andy Jassy raised Amazon’s 2026 capital-spending plan from about $200 billion to $220 billion, citing demand and rising memory-chip costs.

Jassy said Amazon would still lack enough capacity to meet demand in 2026 and believed the constraint could continue through 2027.

He added that much of AWS’s 2027 capacity was already reserved, with commitments extending into 2028.

Amazon also said its AWS AI operation and custom-chip business had each exceeded annualised revenue run rates of $25 billion while growing at triple-digit percentages.

The market appears to view the spending as demand-backed rather than speculative. Still, the budget is not exclusively for AWS.

It also funds semiconductors, robotics, satellites and other technology infrastructure.

The key bargain is clear: investors will tolerate spending above $200 billion while AWS grows near 37% and produces margins around 40%.

That bargain becomes harder to defend if cloud growth returns towards 30% before capital intensity declines.

Free cash flow and guidance temper the celebration

Amazon’s trailing operating cash flow rose 33% to $161.4 billion.

However, property and equipment purchases increased sharply, pushing trailing free cash flow from an $18.2 billion inflow a year earlier to a $7.6 billion outflow.

Zacks Investment Research strategist Ethan Feller said the move into negative free cash flow “warrants monitoring”, MarketWatch reported, even though the decline reflects management’s deliberate investment strategy.

Amazon’s businesses are producing more operating cash, but infrastructure spending is rising faster.

That imbalance is manageable while new capacity generates exceptional growth and profit. It becomes a warning if AWS slows before those investments begin returning cash.

Third-quarter sales guidance of $197 billion to $202 billion fell below the roughly $203.9 billion FactSet estimate.