Amazon.com reported quarterly cloud revenue that surpassed market forecasts on Thursday, a result that eased earlier investor concerns about the firm’s substantial planned spending on artificial intelligence development. Shares of the Seattle-based retailer surged by as much as 9% after markets closed, having already risen 3.9% during regular trading before settling somewhat lower.
Amazon Web Services (AWS) recorded revenue of $42.2 billion in the second quarter ended June 30, representing a 37% year-over-year increase. That performance exceeded the analysts’ consensus expectation of a 31.21% rise, based on data compiled by LSEG.
In a statement, CEO Andy Jassy described the cloud unit as "booming," calling the quarter its fastest growth in 18 quarters. He added that "Our AI and chips businesses each eclipsed run rates of more than $25 billion." Earlier in the year the company had said AWS’ annual AI revenue run rate had passed $15 billion and was expanding at a triple-digit percentage pace.
Despite the upbeat cloud numbers, Amazon’s cash flow picture deteriorated sharply. On a trailing 12-month basis in the second quarter, Amazon burned $7.6 billion of free cash flow, compared with $18.2 billion in free cash flow a year earlier. The company is not alone; other large technology firms such as Microsoft, Alphabet and Meta also reported sizable declines in free cash flow as they increase their AI-related investments.
Investors and analysts have worried that the scale of AI spending could strain the traditionally robust cash-generation profiles of major technology companies and risk building excess capacity. Amazon and its peers have argued the expenditures are necessary to relieve capacity constraints that have limited their ability to meet AI-driven demand and have pointed to growing contract backlogs as evidence of sustained customer demand.
AWS’s momentum has been supported by a series of large partnerships this year, including major cloud infrastructure and chip supply arrangements with OpenAI, Anthropic, Meta, Pinterest and Snowflake. Market commentary noted the strong cloud performances at Microsoft and Alphabet as well, with both companies comfortably beating Wall Street estimates for their cloud revenue in the period.
"There were concerns about market share losses on AWS, but that’s been put to bed now," said Dan Morgan, a portfolio manager at Synovus Trust. "It just gives more evidence that AWS’s lead is still intact. The AI tide is rising all boats here."
Beyond cloud, Amazon’s retail operations continued to pursue growth initiatives. The company has been expanding faster delivery options globally and pushing into more rural U.S. markets to attract additional shoppers. Amazon also held its annual Prime Day event during the quarter, running from June 23 through June 26. Adobe Analytics estimated that Prime Day generated over $26.4 billion in total customer spending, with strong purchases across electronics, appliances and everyday items.
Advertising, a key margin-enhancing business for Amazon, reported continued strength. Ad sales rose 26% from a year earlier to $19.8 billion as the company loaded more of its properties with marketing inventory.
Context and market reaction
The quarter’s results appear to have reduced near-term fears that heavy AI investments will permanently impair the financial profiles of dominant cloud providers. AWS’s outperformance relative to expectations, along with solid cloud results from competitors, suggests strong demand for cloud and AI infrastructure despite the large capital commitments required to expand capacity.
Nonetheless, the worsening free cash flow metric illustrates the near-term cost of scaling up AI capabilities. Analysts have noted that additional data center capacity coming online in the months ahead could help sustain the current growth trajectory for cloud revenue, but the financial impact of bringing that capacity to market is reflected in the company’s cash flow figures for the period.
What to watch next
- Whether AWS can maintain its revenue momentum as new data center capacity is brought online.
- How free cash flow trends evolve as Amazon and other big tech firms continue heavy AI-related capital and operating investments.
- Traction in Amazon’s advertising and e-commerce initiatives, and how they contribute to margin recovery.