Amazon rallies as Jassy makes the case for Amazon AI investment
Amazon shares jumped after Q2 results beat estimates and AWS growth helped support CEO Andy Jassy’s AI spending pitch.
By Theo Nakamura · Staff Writer
· 3 min read
Amazon shares rose about 10% in after-hours trading after the company’s second-quarter results gave investors a clearer argument for its Amazon AI investment. For everyday investors, the key signal was that Amazon Web Services, the company’s high-margin cloud unit, accelerated sharply while CEO Andy Jassy described how today’s heavy spending could turn into cash flow later.
CNBC reported that Amazon’s stock moved to about $258 after the release, its highest level since early June. The move followed a period when investors had grown more cautious about large artificial intelligence infrastructure budgets at major cloud companies.
Amazon said revenue increased 20% from a year earlier to $200 billion, above the $196.47 billion consensus estimate from LSEG. GAAP earnings per share, meaning earnings calculated under generally accepted accounting principles, rose 242% to $5.75.
CNBC said the earnings figure could not be cleanly compared with the $1.82 LSEG estimate because it included $53.4 billion in pre-tax non-operating gains, mainly tied to Amazon’s investment in Anthropic. Operating income gave a cleaner read on the business: it rose 43% to $27.46 billion, ahead of the $23.57 billion consensus estimate.
Why did Amazon stock rise after earnings?
The rally centered on AWS and Jassy’s explanation of the economics behind AI spending. AWS revenue climbed 36.8% to $42.23 billion, CNBC reported, beating analyst expectations for about 31% growth and $40.54 billion in revenue.
Cloud computing is the business of renting computing power, storage and software tools over the internet. For Amazon, AWS is especially important because it carries higher margins than much of the retail operation, so faster AWS growth can have an outsized effect on profit.
Amazon’s AI business within AWS now has a run rate above $25 billion, according to CNBC, and is growing by a triple-digit percentage from a year earlier. A run rate annualizes current sales to show the rough size of a business if the present pace continues.
Jassy told analysts that Amazon expects returns to improve as data centers fill up and revenue catches up with the capital spending needed to build them. CNBC reported that he said revenue growth should eventually exceed incremental capex growth, making revenue, free cash flow and return on invested capital “very compelling.”
What did Amazon say about spending?
Capital expenditures, often shortened to capex, are long-term investments in assets such as data centers, servers and chips. CNBC reported that Amazon spent about $53.1 billion in capex during the quarter, up from about $44 billion in the first quarter and above the $49 billion consensus estimate.
Management also raised its full-year capex forecast by $20 billion to $220 billion, with the increase largely tied to higher memory costs, according to CNBC. Investors appeared to take the increase in stride, unlike recent reactions to higher spending plans from Alphabet and Meta described by CNBC.
Amazon’s chip portfolio, including Graviton, Trainium and Nitro, has reached a run rate above $25 billion, up from $20 billion in the prior quarter, CNBC reported. Jassy also said there is a “real chance” Amazon could sell its chips directly to customers, according to CNBC.
AWS backlog ended the quarter at $496 billion, up from $364 billion in the previous quarter. CNBC said part of that increase came from Amazon’s $100 billion Anthropic collaboration announced in April.
For the third quarter, Amazon guided for net sales of $197 billion to $202 billion, implying 9% to 12% growth from a year earlier. FactSet consensus was $203.9 billion, CNBC reported. Amazon also forecast operating income of $22.5 billion to $26.5 billion, compared with a $24.98 billion consensus estimate.
This story draws on original reporting from CNBC.
