Amazon.com Inc. (NASDAQ: AMZN) saw its shares climb to within 1.2% of a 52-week high in premarket trading on Monday, as investors digested a blockbuster earnings report that underscored the company's dominant position in cloud computing and its aggressive bet on artificial intelligence.
The stock traded at $275.17, up 1.3% in premarket action, following a remarkable 15.3% surge on Friday that capped a weekly gain of 17.0%. That performance far outpaced the broader market, with the Nasdaq Composite rising just 1.0% on Friday and 1.59% for the week, while the S&P 500 gained 0.70% on the day and 1.05% over the five sessions.
The rally came after Amazon reported second-quarter results that showed accelerating growth in its cloud division, Amazon Web Services (AWS), and a significant expansion in its order backlog. The company's AWS backlog jumped by $132 billion quarter-over-quarter to reach $496 billion, a 36% increase from the $364 billion reported in the prior quarter. This metric, which represents future committed revenue, is seen as a leading indicator of demand for cloud services.
CEO Andy Jassy said the company "still does not have enough capacity" despite its massive spending plans. Nearly all AWS capacity for 2027 has already been booked, and customers are reserving supply for 2028. This commentary helped reassure investors that the company's aggressive capital expenditure program is justified by real demand.
Amazon raised its 2026 capital expenditure guidance by $20 billion to $220 billion, a move that had previously raised concerns about margin pressure. However, the backlog now stands at 6.6 times the increased spending outlook, suggesting that investment is translating into future revenue at a healthy rate. While this ratio is not a direct return on investment, it indicates that demand is outpacing the company's ability to build out infrastructure.
The earnings report also highlighted AWS's growing profitability. The cloud unit generated $42.2 billion in sales, up 37% year-over-year, and contributed $16.6 billion in operating income, a 64% increase. AWS now accounts for 60.5% of Amazon's total operating income while representing just 21.1% of total sales. Its operating margin expanded to 39.4%, up 6.5 percentage points from a year earlier.
Overall, Amazon's second-quarter sales rose 20% to $200.6 billion, while operating income jumped 43% to $27.5 billion. Advertising revenue grew 26% to $19.8 billion, and online store sales increased 15% to $70.4 billion. The company's net profit figure of $62.6 billion was inflated by $53.4 billion in pre-tax other income, mostly related to its investment in Anthropic, so operating income provides a cleaner view of performance.
Investors should note that cash flow remains a balancing factor. Amazon's trailing free cash flow was negative $7.6 billion, compared with positive $18.2 billion a year earlier, as the company spends heavily on data centers. Jassy explained that AI servers typically pay for themselves in under three years, but cash is spent well before revenue is recognized.
The cloud competition is intensifying. Microsoft Corp. (NASDAQ: MSFT) posted a 43% increase in Azure revenue, while Alphabet Inc. (NASDAQ: GOOGL) saw Google Cloud grow 82%. Amazon's 37% growth is slower, but its operating margin of 39.4% is the highest among the three, and its backlog is second only to Microsoft's $678 billion in total commercial remaining performance obligations.
Looking ahead, Amazon guided third-quarter sales to between $197 billion and $202 billion, with the midpoint coming in 2.2% below the consensus estimate of $203.9 billion. The shift of Prime Day to June will cut nearly four percentage points from reported growth. Operating income is expected to be between $22.5 billion and $26.5 billion.
Investors will be watching the ISM services data on Wednesday and the July jobs report on Friday for broader economic signals. Risks include the potential for backlog to convert slowly into revenue, rising memory costs, and continued negative free cash flow.
