Amazon Raises 2026 AI Spending to $220 Billion as AWS Growth Hits Five-Year High

AWS growth outruns Wall Street's estimates

Amazon reported second-quarter revenue of $200.6 billion, up 20% year-over-year, and operating income of $27.5 billion, up 43%, according to CNBC. That beat analyst expectations of roughly $196.5 billion to $197 billion in revenue polled by LSEG and Bloomberg.

The headline number was Amazon Web Services. AWS revenue hit $42.2 billion, up 36.7% year-over-year, according to finance.biggo, marking the unit's fifth straight quarter of accelerating growth and its fastest pace since the fourth quarter of 2021. CEO Andy Jassy called the run "the fastest growth in 18 quarters" on the earnings call.

Analysts had expected AWS revenue closer to $40.6 billion, per Bloomberg data cited by stocktwits. Amazon beat that by roughly $1.6 billion. AWS operating margin came in at 39%, helped by a $600 million gain on energy derivatives, according to finance.biggo. Strip that out and margin still expanded 520 basis points year-over-year to 38%, a number CFO Brian Olsavsky attributed to "disciplined efficiency gains, capacity optimization, and always closely managing our fixed costs."

Earnings per share came in at $5.75, versus $1.82 expected and $1.68 a year earlier, according to stocktwits. A big chunk of that beat, $53 billion, came from a non-operating, unrealized gain tied to Amazon's stake in AI lab Anthropic, not from selling more stuff or renting more servers.

The stock move and what drove it

Shares jumped in after-hours trading Thursday, with CNBC reporting a move of more than 10% and stocktwits pegging the initial pop at 7%.

Amazon's AI and custom chip businesses, Trainium and Graviton, both topped $25 billion in annual revenue run rate, each growing at triple-digit percentage rates, Jassy said, according to finance.biggo. AWS backlog, meaning contracted work not yet delivered, reached $496 billion, per CNBC.

Capex jumps again, and Amazon says it still won't be enough

Amazon raised its 2026 capital expenditure forecast to approximately $220 billion, up from the $200 billion figure it had held since February and reaffirmed in April, according to CNBC. The Washington Post, citing the Associated Press, framed this as a roughly 10% increase, or about $20 billion more in planned spending, mostly on AI infrastructure.

Jassy told investors rising memory prices pushed the estimate higher. But he was blunt that the increase isn't really about inflation catching up to a fixed plan. "Even at that amount, we will still not have enough capacity to meet all the demand we have in 2026, and I believe this dynamic will also be true in 2027 too," he said, adding that "the demand we already have for 2028 is striking," per CNBC.

Quarterly capital expenditures already hit $54.2 billion in the June quarter, up from $32.1 billion a year earlier, CNBC reported. That spending pace has flipped Amazon's free cash flow negative: the company posted a trailing-twelve-month free cash outflow of $7.6 billion, compared with an $18.2 billion inflow a year ago.

The industry-wide arms race

Amazon's move tracks with what Alphabet and Microsoft have already reported. Alphabet raised its own capex plans to as high as $205 billion and posted Google Cloud growth of 82%, while Microsoft's Azure revenue rose 43% in its fiscal fourth quarter, according to CNBC. Wall Street had already priced in an Amazon capex hike given those numbers.

That context matters for the reasonable skeptic's case here: four hyperscalers, Amazon, Alphabet, Microsoft and Meta, are now collectively committing hundreds of billions of dollars a year to AI infrastructure on the bet that demand keeps compounding. If enterprise AI adoption slows, or if cheaper model efficiency reduces the compute needed per customer, that spending could look excessive in hindsight. Jassy's own counterargument, per finance.biggo, is that data centers carry 30-plus-year useful lives and server investments break even in under three years, meaning the company isn't betting the spending won't pay off, just that it will take patience.

Retail held up, Prime Day timing skews Q3

North America retail revenue grew 16% and advertising revenue rose 26%, according to finance.biggo. Amazon shifted Prime Day into the second quarter this year, which will create a roughly 400-basis-point headwind for third-quarter comparisons.

For the current quarter, Amazon projects net sales between $197 billion and $202 billion, implying 9% to 12% growth, and operating income between $22.5 billion and $26.5 billion, according to finance.biggo and stocktwits.

The Washington Post's dispatch from the Associated Press covered the topline capex increase and strong quarterly results but did not detail the AWS growth acceleration, the Anthropic-driven non-operating income gain, or Jassy's multiyear demand comments, all of which shaped how Wall Street read the quarter. Whether AWS's backlog of $496 billion converts into revenue fast enough to justify a