Amazon.com, Inc. (NASDAQ:AMZN) closed Friday at $271.58, up 15.3% for the session and 17.0% for the week, as investors cheered a surge in cloud-computing profits that validated the company's aggressive artificial-intelligence spending. The rally far outpaced the broader market, with the S&P 500 gaining 0.7% on the day and the Nasdaq Composite rising 1.0%.
The stock's jump came after Amazon reported second-quarter results that showed AWS, its cloud unit, posted a 36.7% year-over-year sales increase to $42.2 billion, while operating income for the segment soared to $16.6 billion, up from $10.2 billion a year earlier. That translated into an operating margin of 39.4%, a 6.5-percentage-point improvement year over year. AWS now accounts for 60.5% of Amazon's total operating income, up from roughly half in the prior-year period.
What caught Wall Street's attention was the incremental profitability of AWS. For every additional dollar of AWS revenue, the company generated 56.9 cents of operating profit, a metric that underscores the operating leverage in the cloud business. AWS contributed approximately 78% of Amazon's year-over-year growth in total operating profit, according to an analysis of the company's segment disclosures.
The strong cloud performance gave management the confidence to raise its 2026 capital expenditure target to $220 billion, up from about $200 billion previously, even as the company reported negative free cash flow. This marks a stark contrast to February, when a similar-sized spending plan sent shares down 9% after AWS growth of 24% failed to reassure investors. This time, the market rewarded the company's willingness to invest in AI infrastructure, given the visible returns.
Amazon's overall operating income rose 43% to $27.5 billion, while net income reached $62.6 billion, or $5.75 per share, helped by a pre-tax gain of $53.4 billion related to its investment in Anthropic. Headline earnings were boosted by that one-time gain, but the underlying retail and advertising businesses also showed strength. Online store sales grew 15%, seller services rose 16%, and advertising revenue jumped 26% to $19.8 billion.
The company's backlog for AWS services—a measure of future committed revenue—swelled to $496 billion, up from $364 billion in the prior quarter. Chief Executive Andy Jassy said 2026 capacity is already inadequate and that most of 2027 capacity is pre-sold, with reservations extending into 2028. That suggests the AI-driven demand wave is far from peaking, though it also implies continued heavy capital outlays.
Amazon's results come amid a broader AI infrastructure boom. Microsoft reported 43% growth in Azure and other cloud services, while Alphabet's Google Cloud surged 82% year over year, partly due to initial sales of TPU systems. Alphabet said growth accelerated excluding those sales. AWS's 39.4% operating margin now exceeds Google Cloud's 35.6%, though the comparability is limited because Microsoft does not disclose Azure's margin separately.
Looking ahead, Amazon guided third-quarter revenue to a range of $197 billion to $202 billion, with operating income between $22.5 billion and $26.5 billion. The timing of Prime Day is expected to shave nearly four percentage points off reported growth. At the midpoint, operating margin would climb to about 12.3%, up from 9.7% a year earlier, signaling continued efficiency gains.
Yet risks remain. The rally hinges on sustained AWS expansion and stable margins. Rising memory costs could keep capital expenditures elevated, and any slowdown in capacity conversion might extend negative free cash flow. Moreover, headline earnings are becoming less reliable for forecasting due to recurring gains from Anthropic. Investors will watch upcoming ISM manufacturing data and July employment figures for clues on rate policy, which could affect high-multiple tech stocks.
For now, the market is rewarding Amazon for delivering what investors demand: visible, near-term revenue and margin expansion. The question is whether the company can maintain that momentum as it doubles down on AI infrastructure.
