Amazon's $200 Billion Quarter and AWS Surge Sparked a 20% Rally — But Can AI Spending Keep Paying Off?

Shares of Amazon rocketed 20.7% to ARS 3,105.00 on the Buenos Aires exchange, extending a post-earnings rally that began July 31 after the company delivered a Q2 that shattered expectations. Amazon reported earnings of $5.75 per share on revenue of $200.6 billion, crushing Wall Street estimates of $1.81 and $196.2 billion, respectively.

The surge pushed Amazon past a $3 trillion market capitalization for the first time.

Cloud Computing Is Now Amazon's Profit Engine — And It Just Hit Another Gear

AWS operating income reached $16.6 billion, up from $10.2 billion a year earlier, at an operating margin of 39.4%.

The cloud unit supplied 21.1% of Q2 revenue but 60.5% of operating income, up from 53% a year ago. In plain terms, every dollar of revenue shifting toward cloud computing is far more profitable than a dollar from selling goods online — and that shift is accelerating.

AI Demand Is So Strong That $220 Billion in Spending May Not Be Enough

Capital expenditures are now projected to hit $220 billion this year, up from $200 billion projected in February.

CEO Andy Jassy warned that "even at that amount, we will still not have enough capacity to meet all the demand we have in 2026."

That spending binge has flipped trailing 12-month free cash flow to negative $7.6 billion — money going out the door faster than it comes in. Investors are betting the payoff comes later; the risk is that it doesn't.

A $53 Billion Paper Gain Inflated the Bottom Line

The quarter included $53.4 billion of non-operating income, driven primarily by an upward revaluation of Amazon's stake in AI company Anthropic. Strip that out, and adjusted EPS was $1.97 versus the $1.82 consensus — a solid beat, but far less dramatic than the headline number suggests. Investors should track operating income, not reported net income, for the real trend.

A $496 Billion Backlog Signals the Rally May Have Room to Run

AWS backlog — contracted work that hasn't come online yet — reached $496 billion.

Morgan Stanley reiterated a Buy rating with a $335 price target. The question now: can Amazon convert that contracted demand into profit fast enough to justify a stock that has gained over 26% in days? The backlog says yes. The negative cash flow says prove it.