Subscribe to our newsletter! Stay always in touch!
Nothing on this website or any associated links should be considered financial advice. Always consult a qualified financial, tax, or accounting professional before making any financial decisions.
Disclaimer: The information provided by The People’s Economist (TPE) in our financial calculators and dashboards is for general informational purposes only and is not intended to provide specific financial or investment advice. The calculations provided by these tools are based on certain assumptions that may vary with your specific circumstances. Though TPE does our best to assure the accuracy of our calculators, we make certain simplifying assumptions in some cases and the results of the financial calculators are not guaranteed and are not a substitute for professional financial advice. Users should seek the advice of a finance professional before making any financial decisions. Though we do our best to ensure the accuracy of the calculators, TPE is not responsible for any errors or omissions, or for any action taken in reliance on information contained on this website. TPE expressly disclaims all liability in respect of any actions taken or not taken based on any contents of this website. By using TPE financial calculators and dashboards, you agree to hold TPE harmless from any and all losses, liabilities, or expenses incurred as a result of using the information provided. The use of TPE Website and its contents does not create a client relationship with TPE. TPE may update or modify this disclaimer at any time without prior notice. By continuing to use TPE’s financial calculators after any changes to this disclaimer, you accept and agree to any and all modifications. Please contact us with any questions or concerns about this disclaimer or its use of financial calculators
Heading into Amazon’s (AMZN +15.32%) second-quarter earnings print, the stock had struggled to overcome fears of overinvestment in artificial intelligence and deteriorating free cash flow (FCF).
But it turns out the market is willing to reward companies that take big bets, as long as there is evidence of big returns.
Amazon reported blowout second-quarter earnings results, crushing Wall Street consensus estimates for earnings and revenue, even as it raised its full-year capital expenditure guidance.
Revenue of roughly $200.6 billion beat estimates by over $4 billion and rose nearly 20% year over year. Operating income surged over 43%. Earnings came in particularly high, due to a pre-tax gain of over $53 billion, largely from Amazon’s stake in Anthropic.
Amazon stock had surged roughly 13.4%, as of 11:48 a.m. ET today, not only due to the results, but also because Amazon CEO Andy Jassy delivered tremendous news to shareholders.
Image source: Amazon.com.
Demand is off the charts
Amazon is planning to spend more than any other hyperscaler on AI infrastructure this year. As a result, the company’s capex guidance has spooked investors.
Amazon had guided for $200 billion in capex in 2026, and Jassy just raised that guidance to $220 billion, largely due to surging memory prices.
Amazon is feeling the impact of this level of investment. FCF turned negative in the quarter to the tune of roughly $7.6 billion.
But the results have also started to show up, particularly in Amazon Web Services (AWS), the company’s cloud division, which also provides compute for AI.
AWS revenue of $42.2 billion in the quarter beat estimates by roughly $1.7 billion, increasing 37% year over year. In fact, that’s the fastest quarter of AWS growth in 18 quarters when AWS revenue was less than half of what it currently is.
It’s this aspect of the business where Jassy delivered tremendous news to shareholders.
Expand NASDAQ : AMZN Amazon Today's Change ( 15.32 %) $ 36.08 Current Price $ 271.58 Key Data Points Market Cap $2.9T Market cap calculated using publicly traded shares outstanding only. Does not include unlisted, private, or dual-class non-traded shares. Implied market cap may vary. Day's Range $ 262.01 - $ 273.23 52wk Range $ 196.00 - $ 278.56 Volume 129.1M Avg Vol 49.5M Gross Margin 50.77%
“Even at that [capex] 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. In fact, the demand we already have for 2028 is striking. Remember, enterprises are still very early in using inference at scale in their current production applications,” Jassy said on the company’s earnings call.
Jassy believes the company is well-positioned to generate strong returns
Jassy remains optimistic about the returns on invested capital (ROIC) the company can generate after the heavy upfront investments.
Jassy explained that there are two major parts of its large AI investment: data centers and the servers and networking equipment that go into the data centers.
Data center investments are made two years before the servers go in, and therefore before the data centers can be monetized. Once the data centers open, Amazon will generate significant revenue for over 30 years without another major upfront investment, according to Jassy.
Servers and networking equipment, though, run on a shorter cycle. Jassy said this equipment is purchased only a few months before being put to use. The break-even on this investment is under three years, while most AI capacity is being contracted on five-year contracts, he said.
Therefore, there is significant FCF generation in the two to three years after break-even, and AWS has a strong track record of pulling this forward, Jassy added.
Now, I think the bears would dispute some of Jassy’s assumptions about long-term AI compute demand and the useful life of some of this equipment.
It’s hard to know how everything will play out, but I think Amazon is a better bet on AI than many other companies because of its track record, the diversity of its businesses, and earnings multiples that remain fairly close to historical averages.
