Amazon's Cloud Business Reaccelerates as AI Bet Pays Off

AWS growth jumped to 37 percent, its fastest pace in 18 quarters, while a $53.4 billion Anthropic gain lifted net income even as AI spending pushed free cash flow negative for the year.

Key Takeaways

• AWS revenue rose 37 percent year over year to $42.2 billion, its fastest growth in 18 quarters, lifting its annualized run rate to $169 billion and operating margin to 39.4 percent.
• Net income reached $62.6 billion, driven by a $53.4 billion non-operating gain tied to Amazon’s Anthropic stake, lifting diluted earnings per share to $5.75 from $1.68 a year earlier.
• Trailing twelve month free cash flow swung to a $7.6 billion outflow as capital spending rose 64 percent, the clearest sign yet of what Amazon’s AI buildout is costing the company.

A Quarter That Rewrites the Narrative

Amazon’s second quarter delivered the kind of numbers that force a re-reading of a stock’s entire narrative. Net sales rose 20 percent year over year to $200.6 billion, the first time the company has cleared $200 billion in a single quarter, and comfortably ahead of the $196.47 billion Wall Street had modeled. Operating income climbed 43 percent to $27.5 billion, lifting the consolidated operating margin to 13.7 percent from 11.4 percent a year earlier. Net income reached $62.6 billion, or $5.75 per diluted share, against $18.2 billion, or $1.68 per share, in the same period last year. Each of the headline figures beat expectations by a wide enough margin to reset the terms of the debate investors have been having about Amazon’s spending.

The report landed after a bruising stretch for the shares, which had fallen roughly 11 percent over the prior three months as concern mounted over the scale of Amazon’s artificial intelligence investment and the uncertain timeline for its payoff. Shares closed at $226.65 the session before the release, down 1.8 percent, then rose 3.9 percent to $235.50 on the day of the report before extending gains beyond 8 percent in after hours trading, touching $251.92. Volume of 78.7 million shares ran roughly 66 percent above the stock’s three month average, a scale of participation that reflected how much the quarter had riding on it.

AWS Returns to Form

Amazon Web Services supplied the quarter’s central argument. Segment revenue rose 37 percent year over year to $42.2 billion, the fastest pace in 18 quarters and well past the 31 percent growth analysts had penciled in. The acceleration lifted AWS’s annualized revenue run rate to $169 billion and pushed segment operating income to $16.6 billion, up from $10.2 billion, at a 39.4 percent margin, the highest the division has posted in more than a year. Chief Executive Andy Jassy described AWS as “booming,” and the detail supports the word: Amazon said its AI services business and its custom silicon franchise, built around the Trainium and Graviton chip families, each now exceed a $25 billion annualized run rate and are each growing at triple digit rates.

The reacceleration carries weight because AWS had trailed its principal rivals for much of the past two years. Alphabet reported Google Cloud growth of 82 percent for its most recent quarter, and Microsoft’s Azure grew 43 percent, both ahead of AWS’s 37 percent. But AWS remains the largest cloud franchise by absolute dollars, and the nine point jump from 28 percent growth in the first quarter is the sharpest sequential move the segment has logged across the past six reported quarters, suggesting the capacity constraints that throttled growth through 2025 are finally easing. Amazon Bedrock reinforced the point: the company added more than ten managed foundation models during the quarter and said customers spent more on the platform in three months than in every prior quarter combined.

The Anthropic Windfall

The headline net income figure comes with a qualifier that institutional readers will already be applying. Of the $62.6 billion in net income, $53.4 billion arrived as non-operating, pretax other income that Amazon attributed to its investment in Anthropic, the AI research company in which it holds a substantial equity stake. Anthropic has reportedly been in early discussions around a public listing that would value the company near $1 trillion, and Amazon’s holding appears to have been marked up accordingly this quarter. The gain is real in accounting terms but has nothing to do with operating performance, a distinction that matters enormously for anyone using this quarter to forecast the next.

Strip the mark to market gain away and the operating story still holds up. Operating income of $27.5 billion and a 2.3 point year over year expansion in consolidated margin reflect genuine improvement in how Amazon runs its businesses, not a one time accounting event. The lesson for investors is a familiar one in an era when large technology companies hold meaningful equity stakes in the AI startups they also supply with compute. Reported earnings at Amazon, and increasingly across its peers, will carry more noise from these holdings than they used to, and separating operating cash generation from portfolio marks has become a necessary discipline rather than a footnote.

The Price of the AI Buildout

The other side of the AI ledger showed up in cash flow. Trailing twelve month free cash flow swung to an outflow of $7.6 billion, compared with an inflow of $18.2 billion a year earlier, driven by a $66.1 billion year over year increase in property and equipment purchases. Trailing twelve month capital expenditures reached $169.0 billion, up 64 percent, and commentary accompanying the release was consistent with earlier company guidance for roughly $200 billion in full year 2026 capital spending, against $131 billion in 2025.

Amazon has financed a meaningful share of that buildout with debt rather than operating cash alone. The company priced a $25 billion, eight tranche bond offering on July 7, its fourth major debt raise of the year, drawing peak orders near $62 billion before settling at roughly $41 billion, still 1.6 times oversubscribed, through a syndicate led by Barclays, Goldman Sachs, JPMorgan, and Morgan Stanley. Long term debt on the balance sheet rose to $128.9 billion at quarter end from $65.6 billion at the close of 2025, and the company has signaled it does not intend to issue further debt for the remainder of the year, leaving its financing largely locked in even as the capital program continues to outrun cash from operations.

Retail’s Quiet Strength and the Market’s Verdict

Away from cloud and AI, Amazon’s consumer businesses turned in results that would headline an ordinary quarter. North America segment sales rose 16 percent to $116.2 billion, with operating margin holding at 7.9 percent, while International sales grew 15 percent to $42.2 billion. Advertising revenue, increasingly central to Amazon’s margin story, rose 26 percent to $19.8 billion, and Amazon Business, the company’s wholesale arm, reached a $60 billion annualized run rate. Rufus and Alexa+ were folded into a single Alexa for Shopping assistant whose active users nearly doubled during the quarter, a sign that Amazon’s own AI investments are beginning to shape consumer behavior rather than sit in the background.

For the third quarter, Amazon guided net sales of $197.0 billion to $202.0 billion, implying growth of 9 to 12 percent, a deceleration the company attributed largely to Prime Day’s shift into the second quarter this year, noting growth would run nearly 400 basis points higher excluding that timing effect. Operating income guidance of $22.5 billion to $26.5 billion compares with $17.4 billion a year earlier. Wall Street’s consensus had been broadly bullish heading into the print, and the market’s response, a same session gain of nearly 4 percent followed by a further advance after hours, read as confirmation that Amazon’s AI spending is beginning to show up in growth rather than sitting solely on the capital budget. Whether that reacceleration holds through a full year of $200 billion in infrastructure spending is now the question that will define the next several quarters.