Amazon beat expectations for quarterly cloud sales growth and boosted its annual capital spending outlook, signalling demand for AI services remains strong enough to justify its massive infrastructure investments.

Shares in the Seattle-based online retailer climbed more than 9 percent after the market's close, following a 3.9 percent rise during the trading ⁠session.

Its revenue increased 20 percent to more than US$200 billion in the second quarter, compared to last year, with its cloud business, Amazon Web Services, jumping 37 percent to reach $42.2 billion.

"AWS is booming," CEO Andy Jassy said in a statement, noting it was the unit's fastest growth in 18 quarters. "Our AI and chips businesses each eclipsed run rates of more than $25 billion."

He said Amazon now expects capital expenditures to reach US$220 billion this year, a 10 percent increase from an earlier forecast. Jassy said the cost of purchasing memory chips was a prime factor in the increase.

"Even at that amount, we will still not have enough capacity to meet all of the demand we have in 2026," he said on a call with investors. "I believe this dynamic will also be true in 2027 too."

Amazon said two of its AI-related divisions also grew by "triple-digit percentages": its AI cloud and chips businesses each "exceeded" $25 billion annual revenue run rates, which is a measure of recurring sales.

But the company's free cash flow turned sharply negative in the period. The company burned US$7.6 billion of cash on a trailing 12-month basis in the second quarter, ⁠compared to US$18.2 billion in free cash flow a year earlier.

Other big tech competitors, including Microsoft, Alphabet and Meta also reported big drops in free ⁠cash flow as they ramp up spending. Still, ⁠the strong showing from the world's top cloud services provider mirrors solid performances from rivals Microsoft and Alphabet, both of which comfortably beat Wall Street estimates for cloud revenue.

"There were concerns about market share losses on AWS, but that's been put to bed now," said Dan Morgan, 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."

The upbeat results could help quell some concerns over Big Tech's relentless AI investments – set to exceed US$700 billion this year – which have strained cash flows at the traditionally cash-rich companies and sparked worries that they might be overbuilding capacity.

Companies including Amazon, however, have argued that the spending is crucial. The outlays, they say, help ease capacity constraints that have prevented them from fully meeting AI-driven demand, pointing to their ballooning contract backlogs. (Agencies)



Edited by Cecil Wong