Amazon reported stronger-than-expected second-quarter revenue on Thursday as rapid growth at Amazon Web Services helped offset concerns about the company’s rising artificial intelligence spending.
Amazon shares surged more than 12% when trading opened on Friday, reflecting investor enthusiasm over the accelerating performance of its cloud-computing division.
Amazon Raises Annual Spending Forecast
The e-commerce and technology giant increased its full-year spending forecast by $20 billion to approximately $220 billion.
Amazon attributed part of the increase to the rising cost of memory chips, which are essential for data centres and artificial intelligence infrastructure.
The company continues to invest heavily in computing capacity as demand for generative AI products and cloud services expands.
AI Investments Drive Capital Expenditure Higher
Amazon’s capital expenditure over the previous 12 months climbed to $173 billion.
According to the company, the sharp rise in property and equipment purchases mainly reflected investments in artificial intelligence infrastructure.
These projects include data centres, computing equipment and other resources needed to support Amazon Web Services and its growing range of AI products.
However, the scale of the investment programme has raised concerns about its effect on Amazon’s free cash flow.
Negative Cash Flow Raises Investor Concerns
Investors are questioning how quickly Amazon’s massive AI spending will generate sustainable profits.
The company reported negative free cash flow of $7.6 billion. Analysts at Vital Knowledge said the figure highlighted the financial pressure facing hyperscale technology companies as they compete for leadership in artificial intelligence.
Amazon and its largest technology rivals are investing billions of dollars in processors, data centres and energy capacity. These expenses could restrict cash generation in the near term, even when revenue continues to increase.
Amazon Web Services Growth Accelerates
Despite the financial pressure, Amazon’s investments are expanding its cloud capacity and supporting the development of new AI services.
Amazon Web Services generated quarterly sales of $42.2 billion, representing growth of 37% from the same period a year earlier.
This was AWS’s fastest growth rate in 18 quarters and demonstrated strong demand for cloud computing and artificial intelligence infrastructure.
The performance helped reassure investors that Amazon’s investment strategy is strengthening its position in the rapidly expanding AI market.
Andy Jassy Sees Trillion-Dollar Potential for AWS
Amazon CEO Andy Jassy expressed confidence in the long-term prospects of the company’s cloud business during the post-earnings conference call.
Jassy said Amazon Web Services could eventually generate $1 trillion in annual revenue, although he did not provide a specific timeframe for achieving that target.
The ambitious projection reflects Amazon’s expectation that more businesses will transfer their operations to the cloud and adopt artificial intelligence services.
Amazon Revenue Beats Wall Street Estimates
Amazon’s total second-quarter revenue reached $200.6 billion.
The result exceeded analysts’ average forecast of $196.16 billion and demonstrated strong performance across the wider company.
Amazon also reported earnings per share of $5.75. However, the figure was not directly comparable with the market consensus because it included a substantial one-time investment gain.
Anthropic Investment Boosts Net Income
Amazon recorded $53.4 billion in non-operating pre-tax income during the quarter.
Most of this amount was connected to an increase in the value of the company’s investment in Anthropic, the artificial intelligence start-up behind the Claude chatbot.
The gain significantly boosted Amazon’s reported net income. Nevertheless, it did not represent income generated through the company’s normal business operations.
Investors may therefore focus more closely on operating profit, cash flow and AWS growth when evaluating the underlying results.
Third-Quarter Revenue Forecast Misses Expectations
For the third quarter, Amazon expects revenue between $197 billion and $202 billion.
The upper end of that range remains below the Wall Street consensus forecast of approximately $203.9 billion.
Amazon projected operating income of between $22.5 billion and $26.5 billion. This would represent a notable improvement from the $17.4 billion reported during the same quarter a year earlier.
Analysts Welcome Amazon’s Strong Results
Bernstein analysts responded positively to the earnings report, comparing it favourably with Microsoft’s recent quarterly results.
The strong reaction in Amazon shares showed that investors were particularly encouraged by the acceleration in AWS growth.
However, the company’s rising capital expenditure and negative free cash flow remain important risks. Amazon will need to demonstrate that its heavy AI investments can generate consistent revenue, stronger margins and sustainable long-term profits.
Overall, the results highlighted the growing importance of Amazon Web Services to the company’s future. Rapid cloud growth has strengthened investor confidence, but the financial returns from Amazon’s record AI spending will remain under close scrutiny.
