Amazon NASDAQ:AMZN surged more than 11% in premarket trading Friday after its second-quarter results gave investors fresh evidence that accelerating artificial-intelligence spending is strengthening, rather than eroding, returns at Amazon Web Services. The company paired 37% AWS growth with sharply higher cloud profitability, helping outweigh another major increase in capital expenditures.

Amazon's quarterly sales rose 20% to $200.6 billion, while operating income jumped 43% to $27.5 billion. AWS revenue reached $42.2 billion, marking its fastest growth in 18 quarters, as segment operating income surged 64% to $16.6 billion. AWS operating margin expanded to 39.4% from 32.9% a year earlier, showing substantial profit flow-through despite the infrastructure buildout.

AMZN's Q2 print was exactly what bulls wanted. AWS's accelerating 37% growth beat the bogey, the backlog meaningfully accelerated, and AWS's margin flow-through would suggest AI may not be the ROIC depressant it's been made out to be (in spite of the $20B capex raise), RBC Capital Markets analyst Brad Erickson said.

Amazon raised its 2026 capital-expenditure outlook to $220 billion from $200 billion, largely reflecting higher memory costs and continued AI capacity expansion. That spending is already pressuring cash generation: trailing-12-month free cash flow fell to a $7.6 billion outflow from an $18.2 billion inflow, as property and equipment purchases increased by $66.1 billion.

Investor Takeaway On Amazon Stock

Investors should now watch whether AWS can sustain growth above 30% while preserving margins near 40%. Backlog conversion, Bedrock demand and adoption of Amazon's Trainium chips will determine whether the spending produces durable returns. Amazon's AWS AI and chip businesses have each surpassed $25 billion annual revenue run rates, offering early evidence of monetization.

The primary risk is that rising memory, server and depreciation costs continue pushing free cash flow lower before new capacity generates revenue. For the third quarter, Amazon expects sales of $197 billion to $202 billion and operating income of $22.5 billion to $26.5 billion.