NEW YORK, July 29, 2026 – Amazon.com (NASDAQ:AMZN) heads into its second-quarter earnings report on Thursday after a sharp five-day decline of 7.4%, a move that exceeds the roughly 6% swing options markets had priced in around the results. The stock closed at $226.65 and slipped another 0.8% in after-hours trading, reflecting heightened investor caution.
Revenue and AWS Growth Projections
According to initial Visible Alpha forecasts, Amazon’s second-quarter revenue is expected to reach $196.75 billion. AWS revenue is projected at $40.49 billion, representing an increase of more than 30% year-over-year. Another consensus estimate places AWS’s operating margin at 33.8%. Based on these figures, AWS operating profit is estimated at $13.69 billion, which would account for 62% of Amazon’s projected $22 billion in total operating income at the midpoint of its guidance. Each percentage point of AWS margin corresponds to approximately $405 million in profit.
Margin Concentration and Investor Focus
AWS is expected to generate only about 21% of total revenue but could contribute roughly 60% of overall operating profit, underscoring the critical importance of margin discipline in the cloud segment. If Amazon can maintain the first-quarter AWS margin of 37.7%, it would boost results by roughly $1.58 billion compared to consensus, assuming other factors remain unchanged. Dan Romanoff, an analyst at Morningstar (NASDAQ:MORN), noted, “AWS is the story, and AI is driving AWS.” However, he cautioned that higher depreciation could weigh on cloud margins.
Accelerating Cloud Growth
The pace of AWS growth has been accelerating. In the first quarter of 2026, AWS expanded 28% year-over-year, up from 17% growth in the same period a year earlier. Early Q2 forecasts point to growth exceeding 30%. This trend contrasts with broader market dynamics. Microsoft (NASDAQ:MSFT) provided a clear example of what appeals to investors: Azure’s revenue surged 43%, beating the consensus estimate of 39.98%, and its shares rose about 4% in after-hours trading. Microsoft reported capital expenditures of $41 billion for the quarter.
A week earlier, Alphabet (NASDAQ:GOOGL) highlighted a different trend. Google Cloud’s revenue increased by 82%, but the company announced an increase in its 2026 capital expenditures to between $195 billion and $205 billion. Shares dropped roughly 3% in after-hours trading, and free cash flow came in at minus $5.9 billion.
Cash Flow and Capex Concerns
Amazon’s cash conversion has also declined. Operating cash flow over the trailing twelve months increased by 30% to $148.5 billion. However, free cash flow dropped sharply to $1.2 billion from $25.9 billion, primarily driven by a $59.3 billion rise in equipment spending for artificial intelligence. Credit investors have taken note. Amazon’s dollar bond issue in March saw demand at about 3.4 times the available amount, but interest for its July issuance fell to 1.6 times coverage, making it more expensive for the company to support ongoing infrastructure growth.
What to Watch
Headline sales figures may offer limited insight. The $196.75 billion revenue projection is just $250 million higher than the midpoint of Amazon’s own outlook, which already included a Prime Day event within the quarter. Key risks include AWS expanding by less than 30%, reduced margins, or increased expenses, any of which could prolong the stock’s decline. Conversely, improved cloud growth alongside steady investment could prompt a rebound. Amazon is set to announce results after markets close on Thursday, with its earnings call scheduled for 5 p.m. EDT. Investors on Friday will gauge whether the 7.4% pullback has already accounted for concerns over spending.
