Amazon raises capital spending forecast after posting strongest cloud growth in over four years

Amazon reported its strongest cloud growth in over four years, with AWS revenue jumping 37% to $42.2 billion. To meet relentless AI demand, CEO Andy Jassy raised Amazon's annual capital spending forecast by 10% to $220 billion. This massive infrastructure investment caused free cash flow to turn negative, resulting in a $7.6 billion cash burn. However, surging contract backlogs of $496 billion and a $25 billion run rate for its AI and chip units help justify the heavy outlays.

AWS revenue growth acceleration

• ▪Amazon Web Services revenue grew 37% to $42.2 billion in the second quarter ended June 30, 2026, marking its fastest growth in 18 quarters.
• ▪Amazon Web Services contract backlogs rose to $496 billion at the end of the second quarter of 2026, up from $364 billion in the prior quarter.

Amazon capital spending forecast

• ▪Amazon CEO Andy Jassy stated that Amazon lacks enough computing capacity to meet customer demand for 2026 and 2027 despite increased spending.
• ▪Amazon raised its annual capital spending forecast by 10% to $220 billion, driven primarily by the cost of purchasing memory chips.

Free cash flow decline

• ▪Amazon burned $7.6 billion of cash on a trailing 12-month basis in the second quarter of 2026, compared to $18.2 billion in positive free cash flow a year earlier.
• ▪Big Tech competitors Microsoft, Alphabet, and Meta also reported significant drops in free cash flow due to ramped-up capital spending.

AI infrastructure investment returns

• ▪Amazon CEO Andy Jassy stated that Amazon's AI and chips businesses have each eclipsed run rates of more than $25 billion.
• ▪Amazon starts spending on data centers roughly two years before they open, creating a period of cash outflow before revenue is generated.

AWS customer partnerships

• ▪Amazon Web Services has secured cloud infrastructure and chip supply partnerships with OpenAI, Anthropic, Meta, Pinterest, and Snowflake.
• ▪Amazon CEO Andy Jassy stated that the majority of Amazon Web Services compute capacity for 2027 has already been reserved by customers.

Advertising revenue growth

• ▪Amazon advertising sales rose 26% from the previous year to $19.8 billion in the second quarter of 2026.
• ▪Amazon is increasing advertising revenue by packing more marketing messages onto Prime Video and its shopping website.

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