Will Amazon or Alphabet Better Digest AI Capex This Quarter?

Amazon and Alphabet both reported Q2 FY2026 results on Monday, with AI infrastructure taking center stage. Amazon's cloud unit, AWS, saw 36.7% YoY revenue growth to $42.2 billion, with operating income at $16.6 billion and a 39% margin. Alphabet's Google Cloud grew 82% year-over-year to $24.8 billion, with operating income at $8.8 billion and margin expansion to 35.6%. However, both companies reported negative free cash flow.

Amazon self-funds its AI capex from $45 billion in quarterly operating cash flow, while Alphabet raised $70 billion in combined equity and debt, suspended its buyback, and raised long-term debt to $98.2 billion. Alphabet's cloud backlog grew to $514 billion.

AWS servers reportedly break even in under three years, while Alphabet's TPU revenue only started contributing in Q2 and the vast majority will arrive in 2027. Interest expense has already surged 5x year-over-year. Analysts predict AI infrastructure spend will continue to rise, making it crucial for both companies to monetize AI infrastructure fast enough to justify record capex.