Amazon Q2 Earnings Call Highlights AI Capacity Push

Amazon.com, Inc. AMZN used its second-quarter earnings call to emphasize accelerating AWS growth, expanding artificial intelligence demand and a major infrastructure investment cycle. Management said that artificial intelligence (AI) workloads are driving broader cloud adoption while outlining a higher capital spending outlook.

The discussion centered on balancing near-term free cash flow pressure from AI investments with expectations for long-term returns from expanded AWS capacity.

AMZN Focuses on AWS Expansion

CEO Andrew Jassy said that AWS revenue growth accelerated for the fifth consecutive quarter, reaching 36.7% year over year in the second quarter. Jassy highlighted a $169 billion annualized revenue run rate and a $496 billion backlog as evidence of sustained demand.

Jassy said that AWS is benefiting from both AI and core cloud workloads, with customers increasingly placing inference applications near existing data and infrastructure. He noted that AI revenue and chips businesses each surpassed $25 billion annualized revenue run rates.

The company reported AWS operating income of $16.6 billion, with segment operating margin reaching 39.4%. Management attributed profitability to efficiency gains, capacity optimization and custom silicon initiatives.

Amazon Raises AI Investment Ambitions

Amazon increased its expected 2026 cash capital expenditures to approximately $220 billion, up from a previous estimate of about $200 billion. Jassy said that higher memory costs contributed to the increase.

Management explained that data center investments have long useful lives, while servers and networking equipment are purchased closer to customer demand. Jassy said that the company expects revenue growth to eventually outpace incremental capital spending.

Amazon reported trailing 12-month free cash flow of negative $7.6 billion, primarily due to increased property and equipment investments related to artificial intelligence.

AMZN Expands AI Product Ecosystem

Jassy highlighted Amazon Bedrock, SageMaker AI and Bedrock AgentCore as key parts of the company’s AI strategy. He said that Bedrock customers spent more in the second quarter than in all prior quarters combined.

During analyst questions, Jassy said that Amazon does not need to rely on a single frontier model because customers want access to multiple models. He added that Amazon is still developing its own frontier model to improve cost control and customization.

The company also pointed to growth in agentic applications, including Kiro coding tools, Amazon Quick and AWS security offerings. Management said that Kiro usage tripled quarter over quarter.

Amazon Sees Broad Consumer Momentum

Amazon’s stores business continued improving through faster delivery, expanded selection and AI-powered shopping tools. The company delivered more than 40% additional same-day or overnight items in the first half of the year compared with the prior-year period.

Management highlighted Amazon Now, its ultra-fast delivery service, which expanded to more cities and reported more than 80% quarter-over-quarter growth in gross sales and units sold.

Amazon also cited growth in Alexa shopping features, with active users nearly doubling in the quarter and interactions increasing more than fivefold year over year.

AMZN Delivers Strong Results and Guidance

Amazon reported second-quarter revenues of $200.6 billion, beating the Zacks Consensus Estimate of $197.10 billion, up 20% year over year.  The company reported earnings of $1.88 per share, which exceeded the consensus mark of $1.83 per share.  Operating income increased 43% to $27.5 billion.

Amazon.com, Inc. Price, Consensus and EPS Surprise

Amazon.com, Inc. price-consensus-eps-surprise-chart | Amazon.com, Inc. Quote

CFO Brian Olsavsky said that third-quarter revenue guidance is expected to be between $197 billion and $202 billion, while operating income is projected to be between $22.5 billion and $26.5 billion.

Management noted that Prime Day timing and foreign exchange pressure affect comparisons in the third quarter. Excluding Prime Day timing differences, third-quarter growth would have been nearly 400 basis points higher.

Amazon Maintains Long-Term AI Strategy

Analysts questioned whether Amazon could slow infrastructure spending and how AI demand would develop beyond 2026. Jassy said that customer demand remains strong, with significant capacity already reserved for future periods.

Jassy also said that Amazon continues exploring broader use of its Trainium chips, including potential direct customer access outside AWS services.

The company emphasized that AI investment remains central to its strategy, with management focused on expanding AWS capacity while maintaining long-term returns.

Zacks Signals for AMZN

Presently, Amazon carries a Zacks Rank #3 (Hold). The Zacks Rank is driven by earnings estimate revisions and is designed to help identify stocks with stronger potential over a one-to-three-month timeframe. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The stock has a Value Score of D, a Growth Score of B, a Momentum Score of D and a VGM Score of C. Zacks Style Scores evaluate value, growth and momentum characteristics, with higher grades representing stronger attributes within each category.

The Zacks Rank and Style Scores can change as analysts update earnings estimates following quarterly results.

Research Chief Names "Single Best Pick to Double"

From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.

This company targets millennial and Gen Z audiences, generating nearly $1 billion in revenue last quarter alone. A recent pullback makes now an ideal time to jump aboard. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research

Source Zacks-com