Amazon shares jumped more than 9 percent in after-hours trading Thursday after the company delivered a quarter that made the bull case look almost too easy: revenue up 20 percent, operating income up 43 percent, and the cloud division growing at its fastest pace in four and a half years. The market cheered the top line. It should probably stare harder at the cash flow statement.
The cloud engine keeps accelerating
Amazon Web Services posted $42.2 billion in second-quarter revenue, a 37 percent increase from $30.9 billion a year earlier and the unit’s fifth straight quarter of accelerating growth. The sequential jump alone, more than $4.6 billion, exceeds the annual revenue of most public software companies. Operating income hit $16.6 billion on a 39.4 percent margin, up 6.5 percentage points from the same quarter last year. The backlog of committed future revenue swelled to $496 billion. At a $169 billion annualized run rate, AWS would slot in at number 24 on the Fortune 500 if it were standalone, a comparison CEO Andy Jassy volunteered on the call.
The spending machine eats cash flow
The counterweight to that momentum is a free cash flow figure that flipped to negative $7.6 billion from a positive $18.2 billion a year ago. The driver is a $66.1 billion year-over-year surge in equipment purchases, which Amazon explicitly ties to AI infrastructure. Jassy raised the 2026 capital expenditure target to $220 billion from $200 billion, citing higher memory costs. Even at that elevated level, he said the company will not have enough capacity to meet all 2026 demand and expects the same shortage to persist into 2027. Property and equipment on the AWS balance sheet reached $223 billion in the first quarter, up $33 billion sequentially; the second-quarter figure has not yet been disclosed.
Capacity still cannot catch demand
Jassy argued the acceleration comes from more than just new data centers coming online. He pointed to AWS’s “broadest functionality across both cloud core and AI” and the gravity of existing customer workloads: as inference moves to production, companies want it next to their data, and most of that data already lives in AWS. Advertising, the quieter compounder, grew 26 percent year over year, accelerating from 22 percent growth when the segment hit $15.7 billion a year ago. Net income of $62.6 billion includes $53.4 billion of non-operating gains, primarily from the company’s stake in Anthropic, a reminder that the GAAP bottom line is currently an investment portfolio story as much as an operating one.
The on-premise tailwind has decades to run
The structural argument remains the 85 percent of global IT spending still running on-premises. Jassy predicts that equation flips over the next 10 to 20 years. If he is right, the capacity constraint is not a bottleneck but a feature of a market that has barely started to migrate. The stock’s after-hours pop suggests investors are pricing the revenue acceleration today and deferring the cash flow question to tomorrow. With $220 billion of capex already committed and still insufficient, tomorrow keeps getting more expensive.