Amazon raised its 2026 capital expenditure target to $220 billion, a $20 billion increase from the $200 billion forecast it held as recently as April, and the stock jumped more than 10% in after-hours trading. The revision came alongside a second quarter that delivered earnings of $5.75 a share against a $1.82 consensus estimate and revenue of $200.61 billion versus $196.47 billion expected. But the headline number that mattered most to the market was the spending plan, which CEO Andy Jassy attributed to rising memory prices and a demand pipeline he said would remain unsatisfied through 2028.
The spending number keeps moving
The $220 billion figure represents a 10% increase in four months and follows Alphabet’s move to lift its own capex ceiling to as high as $205 billion. Amazon spent $54.2 billion in the June quarter alone, up from $32.1 billion a year earlier. That pace has flipped trailing twelve-month free cash flow to a $7.6 billion outflow from an $18.2 billion inflow twelve months prior. Jassy framed the outlay as non-negotiable: contracted AWS backlog hit $496 billion, and even at the new spend level the company “will still not have enough capacity to meet all the demand we have in 2026.”
Cloud growth accelerates but guidance disappoints
AWS revenue grew 37% year over year to $42.2 billion, its fastest pace since 2021 and well ahead of the 31% analysts expected. The unit’s AI and homegrown chip businesses each crossed a $25 billion annual revenue run rate, a data point Amazon has begun emphasizing as proof its silicon bets are paying off. Rivals posted even gaudier percentages, Google Cloud at 82%, Azure at 43%, but Amazon’s absolute scale and backlog depth remain distinct. Yet the company guided third-quarter revenue between $197 billion and $202 billion, below the $204.1 billion consensus, blaming a calendar shift that moved Prime Day into June. Excluding that distortion, growth would be roughly 400 basis points higher.
The cash flow flip is the point
Free cash flow turning negative is not an accident; it is the accounting residue of a capacity war. Amazon is effectively telling shareholders that the return on invested capital in AI infrastructure today exceeds the cost of capital by a margin that justifies burning cash now to capture a backlog that stretches into the next decade. The market’s 10% pop suggests investors agree, or at least that they prefer a company spending aggressively to one rationing capacity. Jassy’s comment that 2028 demand is already “striking” implies the spend curve does not bend soon.
What to watch next
The next test is whether the $220 billion holds or becomes a floor. Memory prices could ease, but the backlog and Jassy’s 2027-2028 framing suggest structural rather than cyclical pressure. Advertising came in at $19.81 billion, a modest beat, and North America retail grew 16% helped by a 9% rise in U.S. online sales during Prime Day week per Adobe. But the story remains the cloud capex cycle. If AWS growth sustains above 35% while free cash flow stays negative, the market will keep rewarding the spend. If growth decelerates before cash flow inflects, the conversation changes fast.