AWS accelerates again, and Amazon.com, Inc. (AMZN.US) AI investment enters the return verification period.

On July 31, Beijing time, after the U.S. stock market closed, Amazon released its Q2 2026 financial report. The most significant signal from this report is not merely that both revenue and profit exceeded expectations, but rather that AWS has re-entered an accelerated growth phase, with its AI and self-developed chip businesses starting to generate quantifiable revenue in response to market skepticism regarding massive capital expenditures. According to Amazon's official financial report, the company's net sales for Q2 reached $200.6 billion, a year-on-year increase of 20%; operating profit was $27.5 billion, up 43% year-on-year. Net profit stood at $62.6 billion, with diluted earnings per share of $5.75, but this figure includes a $53.4 billion non-operating pre-tax gain from its investment in Anthropic. Therefore, in assessing the quality of Amazon's performance this time, attention should be focused on four main aspects: operating profit, AWS growth rate, advertising growth, and cash flow pressure. 1. Highlights of the Financial Report: Growth No Longer Relies Solely on Retail, AWS Becomes a Key Variable From a business structure perspective, Amazon's Q2 showed a combination of stable retail, strong advertising, and accelerated cloud. North America business revenue was $116.2 billion, a year-on-year increase of 16%, with an operating profit of $9.1 billion; international business revenue was $42.2 billion, up 15% year-on-year, with an operating profit of $1.7 billion. Retail did not drag down the groups profit, as occurrences like Prime Day being moved to Q2, improved delivery efficiency, and growth in fresh and everyday essentials collectively supported consumer performance. The advertising business also maintained strong growth. Amazon disclosed that advertising revenue grew by 26% year-on-year. Driven by e-commerce traffic, Prime Video advertising, and AI advertising tools, advertising has become a significant force in enhancing the gross profit structure of the retail business. For investors, the implication of advertising is that it allows Amazon's retail business to evolve from merely being a low-margin transaction platform to a composite monetization model of transaction + media + data. However, the real change in market narrative this quarter comes from AWS. AWS Q2 revenue reached $42.232 billion, marking a year-on-year increase of 37%, the fastest growth in 18 quarters; operating profit was $16.621 billion, up 64% year-on-year, with an operating profit margin of 39.4%. This indicates that Amazon is not only increasing its investment in AI cloud competition but is also starting to demonstrate the simultaneous characteristics of accelerating revenue growth and improving profit margins. 2. AI Commercialization Begins to Take Shape: AWS, Anthropic, and Self-developed Chips Form a Closed Loop In recent quarters, the main skepticism surrounding Amazon has been: with Microsoft Azure and Google Cloud presenting more prominent AI narratives, is AWS losing its leading edge? The Q2 financial report provides a fairly direct answer. Amazon disclosed that AWS currently has an annualized revenue run rate of $169 billion, with backlogged orders reaching $496 billion, and both the AI and chip businesses have annualized revenue run rates exceeding $25 billion, with year-on-year growth in triple digits. These figures change the evaluative framework for Amazon's AI investment. Previously, the market observed a rapid increase in capital expenditures, but now evidence on the demand side is becoming apparent. AWS's AI business is driving training, inference, data storage, vector databases, security governance, and CPU workloads; self-developed chips Trainium and Graviton aim to lower customer costs while enhancing the efficiency of Amazon's infrastructure. Amazon disclosed that leading AI laboratories such as Anthropic and OpenAI have made multi-year, multi-gigawatt-level commitments to Trainium, providing greater visibility for future revenue conversion for AWS. From an industry logic perspective, Amazons advantage isn't just in single-point model capabilities, but in the combination of cloud infrastructure, model platforms, enterprise data, chips, and application layer services. Amazon Bedrocks customer spending in Q2 surpassed the total of all previous quarters, indicating that enterprise customers' demand for multi-model, governable, and deployable AI platforms is expanding. As we enter the inference era, applications such as agents, code generation, and enterprise workflow automation will simultaneously consume GPU, CPU, storage, and database resources, which is precisely where AWS's comprehensive infrastructure adds value. 3. Capital Expenditures Are a Point of Divergence: Short-term Cash Flow Pressure, Long-term Order Fulfillment Prospects The biggest controversy this quarter for Amazon remains capital expenditures. The company raised its 2026 cash capital expenditure expectation from approximately $200 billion to about $220 billion. According to the Associated Press, CEO Andy Jassy stated in a conference call that even with a $220 billion expenditure, the company would still be unable to meet all 2026 demands, expecting this supply-demand imbalance to continue into 2027, with significant reserved demand already observed for 2028. High capital expenditures directly suppress free cash flow. Amazon's official financial report shows that for the 12 months ending June 30, 2026, the company's operating cash flow was $161.4 billion, a year-on-year increase of 33%; however, free cash flow was a net outflow of $7.6 billion, compared to an inflow of $18.2 billion for the same period last year, mainly due to a $66.1 billion year-on-year increase in property and equipment purchases, with related investments primarily focused on AI infrastructure. This is a challenge currently faced by tech giants: AI infrastructure requires upfront expenditures before confirming revenue, with a capacity construction cycle and depreciation pressures involved. The difference is that this quarter, Amazon is providing a relatively clearer explanation of its investment-return dynamics through accelerated growth from AWS, a backlog of $496 billion in orders, and annualized revenue run rates exceeding $25 billion each from its AI and chip businesses. The market is currently willing to buy into this logic, but it remains to be seen whether growth in AI revenue can consistently outpace capital expenditures and depreciation pressures. 4. Market Response: Transitioning from Worrying about Cash Burn to Verifying Returns After the release of the financial report, Amazon's stock price noticeably strengthened. MarketWatch reported that Amazons stock price surged more than 13% at one point during intra-day trading after the report, potentially achieving the best single-day performance in years; Investopedia cited market viewpoints that the faster-than-expected growth of AWS and signs of return on AI investment were significant factors driving the stock price upward. It also noted that JPMorgan raised its target price for Amazon to $365, citing strengthened AWS momentum and improved expectations for AI investment returns. However, the third-quarter guidance remains a short-term speed bump. Amazon expects Q3 net sales to be between $197 billion and $202 billion, a year-on-year increase of 9% to 12%; operating profit is forecasted to be between $22.5 billion and $26.5 billion. The company explained that moving Prime Day from Q3 last year to Q2 this year would affect year-on-year comparisons; if adjusted for the timing of Prime Day, Q3 revenue growth would be approximately 400 basis points higher; additionally, currency fluctuations are expected to have an adverse impact of around 80 basis points. Thus, investment judgments regarding Amazon need to be divided into two levels: in the short term, the stock price has quickly reflected the Q2 positive surprises, and the Q3 revenue guidance along with free cash flow pressures may bring volatility; in the medium to long term, if AWS continues to accelerate and revenues from AI and self-developed chips continue to expand, the market's valuation anchor for Amazon may shift from retail platform + cloud profit center to AI infrastructure platform + global consumer ecosystem. 5. Investment Conclusion: Amazon Re-enters the AI Cloud Mainstream In summary, the core highlight of Amazon's Q2 financial report is that AWS is no longer merely a cash cow maintaining profits, but has become the group's fastest-growing and most certain engine of growth. The retail business stabilizes the base, advertising continues to enhance the profit structure, while AWS demonstrates through its revenue growth, profit margins, and order backlog that AI demand is entering a fulfillment phase. The risks are equally clear: capital expenditure levels are at historically high levels, free cash flow has turned negative, and future depreciation pressures may gradually become more apparent. If AI customer demand or growth in enterprise inference applications fall short of expectations, the market may reassess the rationale for high investment. However, at least for this quarter, Amazon has delivered a financial report that can alleviate AI cash burn anxiety. For long-term investors, the key metrics to track going forward should include AWS growth rates, annualized revenue from AI and chip businesses, changes in backlog orders, capital expenditure tempo, and progress in restoring free cash flow. 6. Key Signals from the Conference Call AWS growth has accelerated again. Management stated that AWS grew by 36.7% year-on-year in Q2, marking the fifth consecutive quarter of acceleration, the fastest growth in 18 quarters, with a quarterly sequential revenue increase of over $4.6 billion. AI and chip businesses have become new growth points. Amazon disclosed that the annualized revenue run rate for AWS's AI and chip businesses has surpassed $25 billion, with both achieving year-on-year growth in triple digits. Backlogged orders provide revenue visibility. AWS's backlog reached $496 billion, a year-on-year increase in triple digits; management believes this reflects customer commitments to long-term computing and cloud service demands. Capital expenditures continue to rise. The company raised its expectation for 2026 cash capital expenditures to approximately $220 billion, primarily targeting AWS and generative AI infrastructure and including investments in fields such as Siasun Robot & Automation, semiconductors, and satellites. Supply remains insufficient. Andy Jassy indicated on the call that even with increased capital expenditures, the company will not be able to meet all demands for 2026, and a similar supply-demand pattern is expected to persist into 2027, with strong demand already observed for 2028. The investment-return cycle was emphasized. Management highlighted that long-cycle assets like data centers, land, power, and construction require upfront investments, while short-cycle assets such as servers and networking equipment will be deployed as customer demand arises, with revenue recognition lagging capital expenditures. Retail remains stable. Prime member delivery speeds set records, with growth in fresh and everyday essentials outpacing the overall business, and both North American and international operations remain profitable. Advertising business continues to grow rapidly. Advertising revenue grew by 26% year-on-year, with Prime Video ads, live sports, and AI advertising tools as significant contributing factors. Q3 guidance is cautious. The company expects sales in Q3 to be between $197 billion and $202 billion, with operating profits projected to be between $22.5 billion and $26.5 billion; management indicated that moving Prime Day forward and currency fluctuations will impact year-on-year performance. Core observation points. The mainline message from the call is that AI investments are not short-term expenses but rather pre-construction activities around defined orders and long-term demand for computing power; however, the market still needs to validate cash flow restoration and capital expenditure returns over the next few quarters.