The Numbers That Made Wall Street Cheer
Amazon just dropped its second-quarter earnings, and the market responded like a kid on Christmas morning. Net sales jumped 20%. Cloud revenue? Even better. The stock shot up nearly 10% in after-hours trading.
But here’s the twist: Amazon isn’t slowing its data center spending. Not one bit. The conventional wisdom says investors want companies to tighten the purse strings on AI infrastructure. Amazon didn’t get that memo.
Consider this: Amazon spent $173 billion on property and equipment in the fiscal year ending June 30. That covers GPUs, natural gas turbines, and land — up from $107.65 billion the prior year. And they’re not done. The 2026 capex forecast just went from $200 billion to $220 billion.
Where’s the money coming from? Amazon dipped into cash reserves. The company ended the quarter with $7.6 billion less cash than a year ago — its first negative free cash flow period this year.
Why AWS Revenue Changes the Conversation
Normally, ballooning expenses would spook investors. But Amazon has a revenue engine that justifies the splurge. AWS revenue grew 37% year over year, hitting $42 billion for the quarter.
That doesn’t mathematically balance the capex. But it shows demand is growing alongside supply. And given the years-long lag between breaking ground on a data center and selling its capacity, that’s reassuring.
The Chip Bet Nobody’s Talking About
Amazon’s AI play isn’t just about building bigger warehouses for servers. The company is betting big on custom silicon — the Trainium chip and the Arm-based Graviton processor. These projects don’t show up in capex numbers, but they could meaningfully improve AWS margins down the road.
CEO Andy Jassy put it plainly during the earnings call: “We see the AI business following very much the same margin trajectory we saw in the core business before.” He added that AWS and Amazon Bedrock can succeed without a frontier model of their own — “there’s not going to be a single model to rule them all.”
The Divergence: Cloud Hosts vs. AI Labs
This pattern isn’t unique to Amazon. Microsoft and Google both saw shares pop after strong cloud earnings. Meanwhile, Meta — which has heavy capex but no clear revenue source for AI — saw its stock fall 8% after earnings. Investors focused on its cash flow crunch.
The lesson? Investors treat AI cloud hosts as the most reliable part of the AI stack. They’re skeptical about the economics for AI labs and startups.
But here’s the uncomfortable truth: Amazon’s hosting revenue is someone else’s AI bill. In Anthropic’s case, it’s literally the same money. If that spending isn’t sustainable for the big labs and their clients, the revenue won’t be stable for Amazon either.
The $3 Trillion Question
It all comes back to what Sequoia’s David Cahn called the $3 trillion question. Is there enough real demand to justify this buildout, or isn’t there?
Cloud hosts like AWS are a few steps removed from that demand problem. But that doesn’t make them immune. If the AI bubble deflates, everyone gets wet — even the ones selling shovels.
For now, investors are cheering. But the math is simple: revenue needs to keep climbing, or that $220 billion capex forecast becomes a liability, not a strength.
