Amazon AI investment case lifts shares after strong cloud quarter

Amazon shares rose about 10% to $258 in after-hours trading after the company’s Amazon AI investment case was reinforced by a stronger-than-expected second quarter and faster growth at its cloud division. Revenue rose 20% from a year earlier to $200 billion, above the $196.47 billion consensus estimate compiled by LSEG, while operating income increased 43% to $27.46 billion, ahead of the $23.57 billion forecast.

Amazon reported GAAP earnings per share of $5.75, up 242% year over year. That figure was not directly comparable with the $1.82 LSEG consensus estimate because results included $53.4 billion in pre-tax non-operating gains, mainly tied to Amazon’s investment in Anthropic.

Operating income was helped by about $1.2 billion in lower expenses, according to the company’s results, including $600 million from tariff-related refunds and a favorable change in the fair value of energy contracts.

What does Amazon’s AI investment mean for AWS?

Amazon Web Services grew revenue 36.8% from a year earlier to $42.23 billion, accelerating from 28.4% growth in the prior quarter. Analysts had expected AWS revenue of $40.54 billion and growth of about 31%, according to consensus figures cited by CNBC.

AWS is Amazon’s cloud computing unit, selling computing power, storage and related services to companies that do not want to build all of that infrastructure themselves. AI demand increases the need for data centers, chips and memory because customers train and run large models using large amounts of computing capacity.

Amazon said the annualized run rate of AWS’s AI business is now more than $25 billion and has grown by a triple-digit percentage from a year earlier. AWS operating margin moved toward 40%, compared with 33% a year earlier, as revenue growth improved operating leverage.

Chief Executive Andy Jassy told analysts that Amazon sees a path for data center spending to produce returns as capacity is used. “As we get a few years out and the revenue growth outpaces the incremental capex growth, which will happen at some point,” Jassy said, “the resulting revenue, free cash flow and return on invested capital is very compelling.”

Amazon’s capital spending reached about $53.1 billion in the quarter, up from roughly $44 billion in the first quarter and above the $49 billion consensus estimate. Management raised its full-year capital expenditure forecast by $20 billion to $220 billion, with higher memory costs accounting for much of the increase, CNBC reported.

The company’s AWS backlog ended the quarter at $496 billion, up from $364 billion in the previous quarter. CNBC attributed part of the increase to Amazon’s $100 billion collaboration with Anthropic announced in April.

Jassy also said on the earnings call that there is a “real chance” Amazon will sell its internally developed chips directly to customers. The company’s in-house chip portfolio, including Graviton, Trainium and Nitro, has a run rate above $25 billion, up from $20 billion in the prior quarter.

How did the rest of Amazon perform?

Amazon’s North America sales rose 16% to $116 billion, exceeding consensus by about $2.2 billion, while operating margin expanded by 34 basis points from a year earlier. International revenue increased 15%, missing consensus by about $500 million, though operating income came in above expectations as margins edged higher by 1 basis point.

CNBC reported that online stores, third-party seller services, advertising and the “other” category, which includes healthcare, licensing and co-branded credit cards, beat revenue expectations. Subscription services missed by $88 million, and physical stores also fell short of estimates.

For the third quarter, Amazon guided for net sales of $197 billion to $202 billion, implying 9% to 12% year-over-year growth. The midpoint of $199.5 billion was below the $203.9 billion consensus estimate from FactSet. Amazon also forecast operating income of $22.5 billion to $26.5 billion, with the midpoint slightly below the $24.98 billion consensus estimate.

This story draws on original reporting from CNBC.