Amazon soars as cloud revenue surge allays fears over ballooning AI bets
Amazon shares surged significantly after reporting robust cloud sales growth. This performance reinforced investor confidence in the company's substantial artificial intelligence investments. The tech giant posted its strongest cloud growth in over four years. This indicates a fresh wave of demand justifying increased capital spending plans. Amazon's results show measurable returns from Big…
Amazon's stock skyrocketed 13% in early trading on Friday, as the company's robust cloud revenue growth quelled fears surrounding its substantial investments in artificial intelligence. The e-commerce and cloud behemoth reported its strongest cloud growth in over four years, signaling renewed demand that justifies a 10% boost in planned capital spending for 2026 to $220 billion. This positive outlook has sent a clear message to Wall Street about the potential returns from some of Big Tech's AI ventures.
Amazon's cloud division is projected to add around $300 billion in market value, driven by a 37% surge in second-quarter cloud revenue. The tech giant's results have surpassed investor expectations, with a 43% jump in cloud revenue reported by Microsoft earlier this week. However, the market is now scrutinizing whether the massive AI spending is yielding tangible, near-term revenue and margin expansion, rather than simply questioning the validity of AI demand.
Bill Birmingham, a managing director at REX Financial, noted that the market is now more focused on whether AI investments are generating visible and measurable returns, rather than just funding larger-than-life projects. Meta and Alphabet, parent company of Google, saw their stocks drop 7% each, despite strong revenue growth, due to raising their capital spending forecasts and experiencing a decline in free cash flows.
Amazon is being given the benefit of the doubt for its continued spending, as it demonstrated strong earnings this quarter. CEO Andy Jassy assured investors that the company is investing in existing demand, with a significant portion of cloud capacity already reserved for 2027 and beyond. Despite the company's free cash flow turning negative in the second quarter, with a trailing 12-month loss of $7.6 billion, Amazon's methodical and responsible approach to capital deployment has earned it the support of at least 15 brokerages, which have raised their price targets on the stock.
Currently, Amazon has a price-to-earnings ratio of 24.67, compared to Microsoft's 22.94 and Alphabet's 19.35.
Written by urgent.news from Economic Times Tech's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
