Amazon (NASDAQ: AMZN) closed Friday at $271.58, up 15.32% on the day, capping a week that saw the stock gain approximately 17% as investors cheered a blockbuster second-quarter earnings report. The surge came as the company's cloud computing division, Amazon Web Services (AWS), delivered a standout performance, with operating income jumping 63.6% year-over-year to $16.62 billion on sales of $42.23 billion, a 36.8% increase.
The results underscored AWS's growing role as Amazon's primary profit engine. The cloud unit accounted for $6.46 billion of the $8.29 billion rise in Amazon's overall operating profit, representing 77.9% of incremental profit despite contributing only 34.5% of incremental sales. For every additional dollar of AWS revenue, the division generated roughly 57 cents in operating income, a conversion rate that far exceeded Amazon's retail operations.
Companywide, Amazon reported net sales of $200.61 billion for Q2 2026, up 19.6% from $167.70 billion a year earlier, and above the $196.47 billion consensus estimate. Operating income surged 43.2% to $27.46 billion, with operating margin expanding to 13.7% from 11.4%. Earnings per share came in at $5.75, though that figure was boosted by a one-time pre-tax gain of $53.4 billion, primarily related to the company's investment in AI firm Anthropic.
AWS surpassed analyst expectations, with revenue exceeding the $40.54 billion forecast by 4.2%. The division's operating margin expanded to 39.4% from 32.9%, approaching the margins of Microsoft's Intelligent Cloud segment, which posted a 40.6% margin. Google Cloud, meanwhile, saw revenue grow 81.8% but carried a lower 35.6% operating margin.
Chief Executive Andy Jassy described AWS as "booming," noting that both its AI and chip divisions had surpassed a $25 billion annual run rate, with each growing at triple-digit rates. The company's AWS backlog reached $496 billion, up 36.3% from $364 billion in the previous quarter, with nearly all 2027 capacity and a portion of 2028 inventory already allocated.
Amazon also raised its planned 2026 capital expenditure to $220 billion, up from a previous plan of $200 billion, as it continues to invest heavily in data centers and AI infrastructure. However, trailing free cash flow turned negative at -$7.6 billion, down from a positive $18.2 billion a year earlier, reflecting the scale of investment. Over the past year, net property purchases of $169 billion have exceeded operating cash flow of $161.4 billion.
"Amazon is earning the right to keep spending," said Thomas Monteiro, senior analyst at Investing.com, noting that the market is rewarding the company for converting its cloud investments into tangible profits.
Retail operations also performed solidly, with North America sales up 16% and advertising revenue climbing 26% to $19.8 billion. However, AWS remained the dominant driver of incremental profit, with North America contributing 19.4% of profit growth and international just 2.7%.
Looking ahead, Amazon guided for third-quarter revenue between $197 billion and $202 billion, implying growth of 9% to 12%, with an 80-basis-point headwind from foreign exchange. Operating income is expected between $22.5 billion and $26.5 billion, up 29% to 52% from a year ago. The guidance excludes the impact of Prime Day timing, which would add nearly four percentage points to growth.
The stock's rally outpaced the broader market, with the S&P 500 up 1.05% and the Nasdaq climbing 1.59% for the week. Investors will now look to next week's earnings from Advanced Micro Devices (NASDAQ: AMD), as well as ISM services data and July payrolls, for further signals on the tech sector and economy.
Risks remain, however. AWS growth could slow before new capacity comes online, rising memory prices might push capital expenditures higher, and persistent services inflation could weigh on consumer spending. But for now, the market is betting that Amazon's cloud dominance will continue to pay off.
